¶1HIGGINBOTHAM, J. These are appeals of a
circuit court order approving a rehabilitation plan of the segregated account
of Ambac Assurance Corporation (Ambac) and other court orders entered earlier
in this proceeding.[2]Numerous interested parties challenge the
validity of various provisions of the rehabilitation plan on various grounds as
well as actions taken by the Office of the Commissioner of Insurance
(commissioner) in relation to the formulation of the plan with the approval of
the circuit court.The interested
parties also challenge various court orders relating to numerous matters,
including the approval of a proposed hearing schedule, the establishment of a
segregated account, the issuance of injunctive relief, and the refusal to
enjoin a settlement agreement between Ambac and a group of financial
institutions.For the reasons that
follow, we conclude that the circuit court properly exercised its discretion in
confirming the rehabilitation plan and in entering the other orders that the
interested parties challenge on appeal.Accordingly, we affirm.

BACKGROUND

¶2Ambac, a Wisconsin insurance company with headquarters in New
York, is one of the largest insurers of financial guarantees in the world.Ambac is a wholly-owned subsidiary of Ambac
Financial Group Inc., a holding company headquartered in New York City.

¶3Beginning in late 2007, Ambac’s books of business began to
suffer due to mounting liabilities, dwindling claims-paying resources, and
plummeting credit ratings.As a result
of these financial challenges, Ambac stopped writing new insurance policies in
mid-2008.

¶4Also beginning in late 2007, the commissioner increased its
oversight of Ambac and retained financial, legal, and insurance industry
experts to monitor Ambac’s financial condition.Ambac’s financial condition continued to worsen over the next two years and
by early 2010 it became apparent that the commissioner needed to take formal
regulatory action to save Ambac from insolvency.

¶5The commissioner proceeded by establishing a segregated
account for Ambac’s greatest liabilities.Working closely with insurance industry experts, the commissioner
identified approximately 1000 out of 15,000 Ambac policies that imperiled
Ambac’s financial stability and assigned those policies to the segregated
account.The commissioner decided
against pursuing a full rehabilitation or liquidation of Ambac’s business and
instead decided on a targeted partial rehabilitation pertaining only to the
segregated account.Pursuing a targeted
partial rehabilitation, according to the commissioner, was necessary to prevent
the triggering of acceleration and early termination provisions under the
contracts governing certain financial transactions, which would have caused
massive financial losses that would have jeopardized the company.

¶6On March 24, 2010, the commissioner submitted a verified
petition for the rehabilitation of the segregated account in Dane County
Circuit Court.The court entered an
order for rehabilitation, appointed the commissioner as rehabilitator, and
directed that the commissioner proceed in accordance with the plan of operation
for the segregated account.The court
also granted the commissioner’s request for a temporary injunction, which, in
relevant part, enjoined any persons or entities from commencing or prosecuting
claims related to the rehabilitation proceedings and from taking any action
that could have the potential to lessen Ambac’s assets.

¶7Approximately six months later, the commissioner filed in the
circuit court, among other documents, a plan of rehabilitation and a disclosure
statement outlining the terms of the plan.We highlight some of the most important features of the plan.

¶8The segregated account is capitalized by a secured note in
the amount of $2 billion dollars and an aggregate excess of loss reinsurance
agreement.Pursuant to the
rehabilitation plan, the segregated account may call upon the general account
to pay all claims allocated to the segregated account as long as the payment of
the segregated account claims does not cause Ambac’s assets to fall below $100
million, less than 2% of Ambac’s claims-paying assets.Thus, the segregated account has access to
approximately 98% of Ambac’s assets. At least initially, holders of claims
allocated to the segregated account will receive 25% of their claims in cash
and 75% in surplus notes.The surplus
notes mature in June 2020, but at some time before the maturity date, the
commissioner will assess the need to modify that date to allow for the
continuation or reissuance of surplus notes after 2020.It is projected that the surplus notes may
not be paid until 2050, if not later.

¶9In November 2010, the circuit court held a five-day
evidentiary hearing on whether to approve the rehabilitation plan.Objectors to the rehabilitation plan were
allowed to submit written objections to the plan and to participate in the
hearing, although they were not allowed to conduct discovery prior to the
hearing or to formally intervene in the rehabilitation proceedings.[3]Following the hearing, the court approved the
rehabilitation plan.

¶10On appeal, numerous interested parties challenge the decisions
made by the commissioner in formulating the rehabilitation plan and by the
court in approving the plan.

DISCUSSION

¶11We organize our discussion of the issues presented in these
appeals as follows.First, we provide
background information regarding insurance rehabilitations in Wisconsin, as set
forth in Wis. Stat. ch. 645
(2011-12),[4]
the Wisconsin Insurers Rehabilitation and Liquidation Act.SeeWis. Stat. § 645.05(1).Second, we explain the standard of review
that we apply in reviewing the circuit court’s decision to approve the
rehabilitation plan proposed by the commissioner.Third, we address and reject the arguments
raised in the consolidated brief on appeal, in the order in which they are
presented.[5]Fourth, we address and reject the arguments
raised in the briefs separately filed by various interested parties on topics
not raised in the consolidated brief.[6]Fifth, and finally, we address and reject the
arguments made in an earlier appeal, primarily concerning the establishment of
the segregated account and the approval of a settlement agreement between Ambac
and a number of large financial institutions.

I.Background on Insurance Rehabilitation

¶12Wisconsin Stat. ch. 645 governs insurance rehabilitation
and liquidation in Wisconsin.The
chaptershall be “liberally
construed” for “the protection of the interests of insureds, creditors, and the
public generally, with minimum interference with the normal prerogatives of
proprietors .…”Wis. Stat. § 645.01(3), (4).Under Wisconsin’s insurance rehabilitation
statutory scheme, rehabilitation “may be used when there is a chance of saving
the insurer without unduly endangering the interests of others.”General commentto Subchapter III, Formal Proceedings, 1967 Wis. Laws, ch. 89,
§ 17.The legislature designed the
insurance rehabilitation statutory scheme to be flexible and informal and
conferred substantial power to the rehabilitator to effectuate rehabilitation:

[The statutory scheme] is designed to make
rehabilitation a very flexible procedure.It is essential that it be regarded as a management rather than as a
legal task.Though it is called a formal
proceeding because it begins with a formal petition to a court and a hearing,
thereafter it should be essentially informal in operation.The [rehabilitation] order is formulated to
emphasize flexibility and informality, and the rehabilitator is given broad
powers.He [or she] must act under the
supervision of the court, of course, but the court’s control should be liberal,
not strict, and should be provided without cumbersome procedures.

¶13To commence insurance rehabilitation proceedings, the insurance
commissioner submits a verified petition for an order of rehabilitation to the
circuit court.Wis. Stat. § 645.31.There are several grounds upon which the commissioner may submit a petition,
including, as pertinent here, when “he or she believes that the insurer may be
successfully rehabilitated without substantial increase in the risk of loss to
creditors of the insurer or to the public.”§ 645.31(1).An order to
rehabilitate the business of an insurer “shall appoint the commissioner …
rehabilitator and shall direct the rehabilitator to take possession of the
assets of the insurer and to administer them under the orders of the court.” Wis. Stat. § 645.32(1).

¶14Although the rehabilitator operates under the supervision of
the court, the rehabilitator has broad powers.“Subject to court approval, the rehabilitator may take the action he or
she deems necessary or expedient to reform and revitalize the insurer.” Wis.
Stat. § 645.33(2).The
rehabilitator is granted “all the powers of the officers and managers” of the
insurance company being rehabilitated and has “full power to direct and manage,
to hire and discharge employees subject to any contract rights they may have,
and to deal with the property and business of the insurer.”Id.To determine how to reform and revitalize the insurer, “[t]he
rehabilitator may consult with and obtain formal or informal advice and aid of
insurance experts.”§ 645.33(3).Based on the advice of experts, “[t]he
rehabilitator may prepare a plan for the reorganization, consolidation,
conversion, reinsurance, merger or other transformation of the insurer.”§ 645.33(5).

¶15Once a rehabilitation plan is prepared, the rehabilitator files
the plan with the circuit court for the court’s approval.“Upon application of the rehabilitator for
approval of the plan, and after such notice and hearing as the court
prescribes, the court may either approve or disapprove the plan proposed, or
may modify it and approve it as modified.”Id.Once the court
approves the plan, the rehabilitator is required to carry out the plan.Id.With
this background in mind, we turn to consider the standard of review.

II.Standard of Review

¶16In this case, we are required to examine the discretionary
determinations made by the circuit court in approving the commissioner’s
rehabilitation plan pursuant to the rehabilitation statutory scheme set forth
in Wis. Stat. ch. 645.We will review the circuit court’s approval
of the rehabilitation plan under an erroneous exercise of discretion standard,
in line with other jurisdictions that follow the Insurers Rehabilitation and
Liquidation Act (IRLA). We will uphold a circuit court’s exercise of discretion
as long as the court “reviewed the relevant facts; applied a proper standard of
law; and using a rational process, reached a reasonable conclusion.”State v. Davidson, 2000 WI 91, ¶53,
236 Wis. 2d 537, 613 N.W.2d 606.In
reviewing the court’s discretionary decision to approve the plan, we will
affirm the court’s findings of fact unless they are clearly erroneous.See Wis. Stat. § 805.17(2); Phelps
v. Physicians Ins. Co., 2009 WI 74, ¶39, 319 Wis. 2d 1, 768 N.W.2d
615.

¶17In the context of insurance rehabilitations, the circuit court
erroneously exercises its discretion when an examination of the rehabilitation
plan demonstrates that the circuit court exceeded its statutory authority or
the court unreasonably substituted the rehabilitator’s beliefs for its own
beliefs.See, e.g., Foster v. Mutual
Fire, Marine and Inland Ins. Co., 531 Pa. 598, 610-11, 614 A.2d 1086
(1992) (providing the standard of review for insurance rehabilitations in a
jurisdiction that, similar to Wisconsin, follows the IRLA).

¶18When reviewing the circuit court’s decision to approve the
rehabilitation plan, we will uphold the determinations made by the
rehabilitator unless the rehabilitator abused his or her discretion.See id. at 609(“[I]t is not the
function of the courts to reassess the determinations of fact and public policy
made by the Rehabilitator.Rather, the
involvement of the judicial process is limited to the safeguarding of the plan
from any potential abuse of the Rehabilitator’s discretion.”); Mills
v. Florida Asset Fin. Corp., 31 A.D.3d 849, 850, 818 N.Y.S.2d 333 (3rd
Dep’t 2006) (“The courts will generally defer to the rehabilitator’s business
judgment and disapprove the rehabilitator’s actions only when they are shown to
be arbitrary, capricious or an abuse of discretion.”); Kentucky Cent. Life Ins. Co. v.
Stephens, 897 S.W.2d 583, 588 (Ky. 1995)(“[T]he standard of the
court’s review of the rehabilitator’s actions is one of abuse of
discretion.Under the special statutory
proceedings, the Commissioner is granted administrative discretion in the
context of the insolvency/delinquency proceedings.”).

¶19This case also requires us to engage in statutory
interpretation.In general, statutory
interpretation presents a question of law subject to de novo review.MercyCare Ins. Co. v. Wisconsin Comm’r of
Ins., 2010 WI 87, ¶26, 328 Wis. 2d 110, 786 N.W.2d 785.However, a court may afford varying degrees
of deference to an agency’s interpretation of a statute that it is charged with
administering.Racine Harley-Davidson, Inc.v.
DHA, 2006 WI 86, ¶11, 292 Wis. 2d 549, 717 N.W.2d 184.We conclude that it is appropriate to afford
great weight deference to the commissioner’s interpretation and application of
the statutes governing the rehabilitation of an insurer and other related
statutes the commissioner is charged with administering.

¶20We acknowledge that the question of how much deference to give
an agency’s interpretation and application of a statute generally arises when
an agency makes a final decision regarding the meaning of a statute following
an administrative proceeding.See, e.g., UFE Inc. v. LIRC, 201 Wis. 2d 274, 280-81, 548 N.W.2d 57
(1996).Here, we are reviewing the
rehabilitation plan that the commissioner submitted for the circuit court’s
approval, and not a final agency decision made following an administrative
proceeding.Although this case presents
unique issues in a context not previously addressed by Wisconsin appellate
courts, we nonetheless conclude that the commissioner’s determinations
regarding the interpretation and application of statutes it is charged with
administering are entitled to great weight deference.

¶21Great weight deference is appropriate when four requirements
are met: “(1) the agency is charged by the legislature with the duty of
administering the statute; (2) the agency interpretation is one of long
standing; (3) the agency employed its expertise or specialized knowledge
in forming its interpretation; and (4) the agency’s interpretation will
provide uniformity and consistency in the application of the statute.”Racine Harley-Davidson, 292
Wis. 2d 549, ¶16.We affirm an
agency’s interpretation of a statute if it is reasonable, even if we believe
that another interpretation is more reasonable.National Motorists Ass’n v. OCI, 2002 WI App 308, ¶13, 259
Wis. 2d 240, 655 N.W.2d 179.

¶22We are satisfied that each of the four criteria for granting
great weight deference is met in this case.First, the commissioner is charged by statute with administrating and
enforcing Wis. Stat. chs. 600 to
655, including ch. 645, the statutory scheme governing rehabilitation and
liquidation.See Wis. Stat. § 601.41(1).Second, the commissioner’s interpretation of
statutes under ch. 645 is long standing, dating back to at least 1967 when the
legislature created the chapter.See 1967 Wis. Laws, ch. 89.Third, the commissioner has extensive
expertise and specialized knowledge in the complex world of insurance
rehabilitation and is vested with broad discretion and authority to structure a
rehabilitation plan.See Wis.
Stat. § 645.33(2).Fourth,
applying great weight deference will provide uniformity and consistency in the
application of the insurance rehabilitation statutes.

III.Consolidated Brief

¶23We turn now to address the arguments raised by the interested
parties in the consolidated brief, in the order in which they have been
presented.

A.Circuit Court’s Findings of Fact

¶24The interested parties argue that the circuit court erroneously
exercised its discretion by adopting “wholesale” the commissioner’s proposed
findings of fact and conclusions of law, rather than conducting an independent
analysis that reflects the court’s independent judgment.In support, the interested parties rely on Trieschmann
v. Trieschmann, 178 Wis. 2d 538, 542, 504 N.W.2d 433 (Ct. App.
1993), where, according to the interested parties, this court held that a
circuit court erroneously exercises its discretion “where it simply ‘accept[s
one party’s] position on all of the issues of fact and law’ and fails to
articulate the facts upon which it based its decision.”The interested parties contend that, because
the circuit court here adopted the commissioner’s proposed findings without
explaining why it accepted those findings over the findings of the interested
parties, the circuit court erroneously exercised its discretion.We disagree.

¶25We begin by observing that the interested parties’ reliance on Trieschmann
is misplaced.Trieschmann
involved a divorce proceeding, in which the circuit court adopted the former
wife’s positions in her brief submitted to the court regarding issues of
maintenance and division of property without explaining its reasoning for
adopting those positions other than to state that it was “the only just
solution to the matter.”Trieschmann,
178 Wis. 2dat 541 (quoting another source). On appeal in that case, we
determined that the circuit court erroneously exercised its discretion because
the court “failed to articulate the factors upon which it based its decision …
[and] failed to indicate why it
believed [the former wife’s] proposal provided the proper result.”Id. at 542.However, we have previously suggested that Trieschmann
does not applyoutside the context of divorce
proceedings.See Kersten v. H.C. Prange Co.,
186 Wis. 2d 49, 60, 520 N.W.2d 99 (Ct. App. 1994) (declining to apply Trieschmann
to a contract dispute).

¶26Here, we are persuaded that Trieschmann does not
apply in the context of rehabilitation proceedings.There are substantial distinctions between
the requirements a court must meet in explaining its reasons for a decision in
a family law proceeding and the requirements in a rehabilitation
proceeding.In family law cases, courts
are held to a high standard with respect to explaining the reasons upon which a
court relied in making its decision.See Trieschmann,
178 Wis. 2d at 541-42.In Trieschmann,
we explained that a trial court’s decision in a family law case must “be the
product of a rational mental process by which the facts of record and law
relied upon are stated and are considered together for the purpose of achieving
a reasoned and reasonable determination.”Id. (quoting another source).This requires the court to state its findings of fact, conclusions of
law, and the factors upon which the court relied in reaching its decision.Id. at 542.

¶27The same is not true with respect to rehabilitation
proceedings.As we have explained, the
legislature intended for rehabilitation proceedings such as this to be informal
and “provided without cumbersome procedures.”Comments to Wis. Stat. § 645.32,
1967 Wis. Laws, ch. 89, § 17.There
is no statutory requirement in Wis. Stat.
ch. 645 providing that a court must specify the facts upon which it
relied in approving a rehabilitation plan, and the interested parties do not
cite any authority imposing such requirements on a circuit court.Upon submission of a plan for approval, a
court “may either approve or disapprove the plan proposed, or may modify it and
approve it as modified.”Wis. Stat. § 645.33(5).Nothing more is required of the
rehabilitation court with respect to explaining its reasons for approving a
rehabilitation plan.Therefore, in
general, a court cannot be reversed for approving a commissioner’s
rehabilitation plan on the basis that it did not set forth its reasoning or
make any findings of fact or conclusions of law.See In re Callahan, 102 Wis. 557, 561,
78 N.W. 750 (1899) (“The rule is well established … that the decision [of the
circuit court] will not be reversed for want of finding[s] of fact[], if the
evidence supports it, especially in a special proceeding.”) (citations
omitted).

¶28In any event, the interested parties are incorrect that the
record is devoid of the court’s reasoning.The court indicated at the hearing on the approval of the plan that it
found the testimony of Roger Peterson, the director of the bureau of financial
analysis and examinations for the commissioner, to be particularly credible and
that his testimony established that the commissioner appropriately exercised
its discretion in formulating a plan that was “fair and equitable” and in “the
best interest of the[] policyholders.”Although the court did not make an oral ruling setting forth in specific
detail its reasons for approving the plan, the court generally described the
testimony it was relying on in reaching its conclusion.

¶29Finally, the interested parties have the burden of challenging
specific findings of fact and conclusions of law, and the interested parties
have failed to meet their burden in this case.See Loeb v. Board of Regents, 29 Wis. 2d 159, 164, 138 N.W.2d
227 (1965) (“A party seeking judicial process to advance his position carries
the burden of proof”); see also Kentucky Cent. Life Ins. Co., 897
S.W.2d at 588(“[T]he burden of proof is upon those contesting the
Commissioner’s actions.”).The interested parties state in conclusory
fashion that the circuit court adopted the commissioner’s proposed findings
“even where they were conclusory, unsupported by, or contrary to[] the
evidentiary record.”However, the
interested parties do not take issue with specific findings and then explain
why those findings were clearly erroneous.Because the interested parties do not explain in any detail which
findings were erroneous and why those findings were erroneous, we conclude that
they have not met their burden to prove that the court’s findings were clearly
erroneous.

¶30For all of these reasons, we reject the interested parties’
argument that the circuit court erroneously exercised its discretion by failing
to exercise its independent judgment in approving the rehabilitation plan.

B.Capitalization of the Segregated Account

¶31The interested parties contend that the circuit court erred in
approving the formation of the segregated account because the account has not
“maintain[ed] an adequate amount of capital and surplus,” as required under Wis. Stat. § 611.24(3)(a).The interested parties provide two reasons in
support of their contention.First, the
segregated account contains only liabilities and no assets, and second, under
the terms of the secured note and reinsurance agreement, Ambac will no longer
have access to the assets held in the general account if Ambac’s statutory
surplus falls below $100 million.

¶32In response, the commissioner maintains that the segregated
account is adequately capitalized from assets held in the general account.Specifically, the commissioner points out
that under the rehabilitation plan, the segregated account and the general
account have equal access to the same common pool of resources held in the
general account.According to the
commissioner, this structure protects Ambac’s claims-paying resources and
provides the necessary resources to satisfy the segregated account
liabilities.

¶33It is helpful at this point in our discussion to provide a
brief history of the creation of the segregated account in this case, as it has
been recounted by the commissioner in its appellate brief and as supported by
the record.

¶34As we explained above, in early 2010, the commissioner decided
to take formal regulatory action under Wis.
Stat. ch. 645 to address the increasing risks Ambac’s deteriorating
financial condition posed to its policyholders, creditors, and the public.The commissioner carefully considered the
advantages and disadvantages of liquidating Ambac, rehabilitating Ambac as a
whole, or conducting a targeted rehabilitation of parts of Ambac through a
segregated account.

¶35Ambac’s books of business involve unique risks because Ambac
insures “some of the most complicated financial instruments ever created.”By way of example, Ambac’s policies insured
“intricate, individually negotiated transactions that generally include
embedded covenants, default triggers, and liquidated-damages provisions tied to
the avoidance of formal delinquency proceedings.”According to the commissioner, the triggering
of these risks would have resulted in substantial claims being brought against
Ambac, thereby “resulting in more claimants competing for distributions from a
smaller pool of claims-paying resources, among other consequential harms.”

¶36The commissioner opted for a targeted rehabilitation of Ambac
using “a surgical segregated account approach” because, in the commissioner’s
informed opinion, this would provide the most beneficial outcome for all
policyholders, without triggering massive avoidable losses.The segregated account was established under Wis. Stat. § 611.24(2), which
permits a corporation, with the commissioner’s approval, to “establish a
segregated account for any part of its business.”“Segregated accounts, by their very nature,
are the equivalent of a ‘company within a company.’” Note to Wis.
Stat. § 611.24, 1979 Wis. Laws, ch. 109, § 1r.

¶37The commissioner conducted an extensive assessment of Ambac’s
business, including “key categories of policies and particularly troubled
individual policies to understand their terms and expected losses.”After completing this assessment, the
commissioner approved the allocation of approximately 1000 policies with
material projected losses, structural problems, and contractual triggers to the
segregated account and left the remaining 14,000 “healthy, performing policies”
in the general account.

¶38As we have indicated, when the segregated account was created,
it was capitalized by imposing a secured note for $2 billion and an excess of
loss reinsurance agreement against the general account.The purpose of doing so was to isolate the
claims-paying resources in the general account from the liabilities in the
segregated account in order to avoid various contractual default triggers.By capitalizing the segregated account with
the secured note and reinsurance agreement, the segregated account obtained
“absolute, on-demand use of all
assets of the General Account to satisfy Segregated Account liabilities.”

¶39With this background in mind, we now address the interested
parties’ arguments.

¶40We address first the interested parties’ argument that the
formation of the segregated account was inadequately capitalized because the
account consisted only of liabilities and no assets.We disagree.The interested parties ignore the approach taken by the commissioner to
capitalize the segregated account by imposing a secured note for $2 billion and
an excess of loss reinsurance agreement against the general account.As we have explained, this gave the
segregated account absolute, on-demand use of all assets of the general account
to satisfy the segregated account liabilities.The circuit court found that this approach to capitalizing the
segregated account was reasonable, a finding that the interested parties do not
challenge as being clearly erroneous.As
we have explained, this approach allows Ambac to protect its claims-paying
resources from the contractual default triggers, embedded covenants, and
liquidated-damages provisions that would likely result in financial disaster
for the corporation.

¶41We also reject the interested parties’ argument that the
segregated account is inadequately capitalized because, under the terms of the
secured note and reinsurance agreement, Ambac is not required to make any
payments out of the general account to the segregated account if Ambac’s
statutory surplus falls below $100 million.The interested parties fail to point to anything in the record, such as
an assessment of Ambac’s surplus assets, which would reasonably suggest that
the statutory surplus is expected to fall below $100 million.

¶42The interested parties also do not dispute that the
commissioner enjoys broad discretion to set the minimum capital and surplus
amounts in a segregated account.The
commissioner’s discretion in setting minimum capital and surplus amounts is guided
by Wis. Stat. § 611.24(3)(a).Under this statute, “the commissioner shall
require the corporation to have and maintain an adequate amount of capital and
surplus in the segregated account.”Wis. Stat. § 611.24(3).Whether a segregated account has an adequate
share of the corporation’s capital and surplus is left to the commissioner’s
discretion.See Note to Wis. Stat. § 611.19,
1971 Wis. Laws, ch. 260, § 72.(“[M]uch discretion should be left to the commissioner to set minimum
capital and surplus requirements[.]”).

¶43After an extensive assessment of Ambac’s complex books of
business, the record shows that the commissioner carefully considered various
approaches to protect the corporation from the expected losses by the most troubled
policies.As the commissioner explains
in its appellate brief, “it was imperative that Ambac’s claims-paying resources
remain in the General Account” because they would be “subject to acceleration,
early termination and other triggers” if Ambac directly capitalized the
segregated account with assets from the general account.

¶44We must defer to the commissioner’s extensive experience and
expertise in rehabilitating insurers in setting the minimum capital and surplus
of the segregated account.We also note
that the approach taken by the commissioner to capitalize the segregated
account was reached after substantial assistance from highly regarded experts
in the insurance and finance industries.The circuit court found that the capitalization of the segregated
account was fair and adequate for rehabilitation and we see no reason to
disrupt that finding.

¶45In sum, the interested parties provide no persuasive reason for
us to reverse the circuit court’s determination that the commissioner’s
approach to capitalizing the segregated account was a proper exercise of the
commissioner’s discretion.

C.Priority of Claims

¶46The interested parties next contend that the plan of
rehabilitation is unlawful because it fails to meet the requirements of Wis. Stat. § 645.68, pertaining to
the order of distribution of claims.The
statute states in pertinent part:

The order of distribution of claims from the insurer’s
estate shall be as stated in this section…. [E]very claim in each class shall
be paid in full or adequate funds retained for the payment before the members
of the next class receive any payment. No subclasses shall be established
within any class….

The statute then sets forth the
order of distribution of claims, beginning with administration costs and ending
with proprietary claims.See Wis.
Stat. § 645.68(1)-(11).

¶47According to the interested parties, the rehabilitation plan
violates Wis. Stat. § 645.68
because it does not follow the stated order of distribution and because it
treats holders of claims allocated to the segregated account as a subclass
within the class of claims that includes claims held in the general
account.

¶48At the outset, we observe that the interested parties’
arguments assume that the priority system set forth in Wis. Stat. § 645.68 applies to rehabilitation
proceedings.Whether § 645.68
applies to rehabilitation proceedings has not been addressed by the interested
parties, the commissioner, or the circuit court.Generally speaking, we will not address
issues not raised and argued by the parties.See Waushara Cnty. v. Graf, 166 Wis. 2d 442, 451, 480 N.W.2d
16 (1992).However, because we view this
to be a threshold issue, and because addressing the topic will clarify the law,
we choose to address it.

¶49Based on our reading of the commissioner’s brief on appeal, the
commissioner understands Wis. Stat. § 645.68
to apply to rehabilitation proceedings.Although we give great weight deference to the commissioner’s
construction and application of the statutes it is charged with administering
and enforcing, we conclude that there is no reasonable construction of the
statute upon which we could conclude that § 645.68 applies to
rehabilitation proceedings.[7]

¶50Statutory interpretation “begins with the language of the
statute. If the meaning of the statute
is plain, we ordinarily stop the inquiry.”State ex rel. Kalal v. Circuit Court for Dane Cnty., 2004 WI
58, ¶45, 271 Wis. 2d 633, 681 N.W.2d 110 (quoting another source).
“[S]tatutory language is interpreted in the context in which it is used; not in
isolation but as part of a whole; in relation to the language of surrounding or
closely-related statutes; and reasonably, to avoid absurd or unreasonable
results.”Id., ¶46.

¶51We begin with the organization of Wis. Stat. ch. 645, the statutory scheme for insurer
rehabilitation and liquidation.Subchapter III of this chapter governs formal insurer delinquency
proceedings.This subchapter is divided
into two sections: the first governing rehabilitation proceedings and the
second governing liquidation proceedings.The statutory scheme governing rehabilitation is clearly set forth,
starting at Wis. Stat. § 645.31
and ending at Wis. Stat. § 645.35.Except as otherwise provided by statute, the remainder of the subchapter
provides the statutory scheme that pertains specifically to insurer
liquidation.See generally,Wis. Stat. §§ 645.41-645.77.

¶52Turning to the language of Wis.
Stat. § 645.68 itself, we observe that the statute makes specific
references to liquidation and no similar references to rehabilitation.For example, § 645.68(1)
concerns the distribution of the costs and expenses of administration and
provides that administration costs include “compensation for all services
rendered in the liquidation ….”(Emphasis added.)This subsection does not provide for
compensation for services rendered in rehabilitation.Additionally, § 645.68(6), which governs
the distribution of claims based solely on judgments, states in relevant part
that, claims based “both on the judgment and on the underlying facts … shall be
considered by the liquidator ….”(Emphasis added.)It is clear from the statute’s explicit
references to liquidation, and the absence of any reference to rehabilitation,
that § 645.68 applies only to liquidation proceedings.

¶53Turning to the statutes closely surrounding Wis. Stat. § 645.68, we observe
that § 645.68 falls within that part of the liquidation statutory scheme
governing claims.The statutes governing
claims in liquidation proceedings start at Wis.
Stat. § 645.61, concerning the filing of claims with the
liquidator, and end at Wis. Stat. § 645.71,
concerning the liquidator’s recommendations to the court as to which claims to
approve.It is plain by the language of
these statutes that they apply only in liquidation proceedings.There is no language in any of these statutes
from which it can be reasonably inferred that these statutes apply in
rehabilitation proceedings.

¶54An examination of the statutes surrounding the part of the
liquidation statutory scheme governing claims further demonstrates that Wis. Stat. § 645.68 applies only to
liquidation proceedings.These statutes
address numerous topics that are relevant only in the context of insurer
liquidation, such as: (1) “Powers of liquidator” (Wis. Stat. § 645.46); (2) “Actions by and against
liquidator” (Wis. Stat. § 645.49);
(3) “Reopening liquidation” (Wis.
Stat. § 645.75); and (4) “Disposition of records during and
after termination of liquidation” (Wis.
Stat. § 645.76).Plainly,
none of these topics have any application to rehabilitation proceedings.

¶55Our construction of Wis.
Stat. § 645.68 is supported by the introductory comment to
§ 645.68 that is found in 1967 Wis. Laws, ch. 89, which created Wis. Stat. ch. 645.The comment states in relevant part:

When an insurer must be liquidated, the outcome is often tragic….It becomes apparent that claims that are
socially more important need to be paid ahead of those that are less
important….

In an effort to minimize the
harm done by liquidation, and
especially to lessen it for those persons least able to bear it, much thought
and consultation went into the structuring of the priority system.

Introductory comment to Wis. Stat. § 645.68, 1967 Wis.
Laws, ch. 89, § 17 (emphasis added).The absence of any language in the above comment regarding
rehabilitation is further evidence that the priority system applies only to
liquidations.

¶56Our construction is further supported by the comments to the
subchapter at issue.The preliminary
comments provide in relevant part:

Preliminary
comment on rehabilitation (ss. 645.31 to 645.35): In statutes dealing with
insurers, it is traditional to provide for separate rehabilitation and
liquidation procedures. This chapter continues that pattern.

¶57We also observe that the application of Wis. Stat. § 645.68 to rehabilitation proceedings would
be contrary to principles of statutory construction because it would produce an
unreasonable result.See Kalal,
271 Wis. 2d 633, ¶46.As we have
explained, the entire purpose of rehabilitation proceedings is to “reform and
revitalize” the insurer.Wis. Stat. §645.33(2).In light of
that purpose, rehabilitation proceedings should “emphasize flexibility and
informality” and “should be provided without cumbersome procedures.”Introductory comment to Wis. Stat. § 645.32, 1967 Wis.
Laws, ch. 89, § 17.The priority
system set forth in § 645.68 provides inflexible and cumbersome rules
concerning the order of distribution of claims, and therefore, requiring the
application of § 645.68 to insurer rehabilitation would be contrary to the
stated purpose of rehabilitation proceedings.

¶58Applying well-established principles of statutory construction,
we conclude that Wis. Stat. § 645.68
cannot be reasonably interpreted to apply to insurer rehabilitation
proceedings.[8]Consequently, we do not address the interested
parties’ argument that the rehabilitation plan violates § 645.68.

D.Right
to Opt Out and Liquidation Value of Claims

¶59The interested parties contend that the circuit court erred in
approving the rehabilitation plan because it fails to provide policyholders “at
least the liquidation value of their claims,” or, alternatively, “the right to
opt out of the plan and receive the liquidation value of their claims.”In support of their argument, the interested
parties cite Neblett v. Carpenter, 305 U.S. 297, 305 (1938), where,
according to the interested parties, the United States Supreme Court heldthat
an unconstitutional taking of property occurs when a rehabilitation plan fails
to provide policyholders with the liquidation value of their claims or the
right to opt out and receive what they would have in a liquidation.

¶60The commissioner argues that neither Neblett nor any other
case provides that rehabilitation plans must afford policyholders the
liquidation value of their claims or the right to opt out of the rehabilitation
plan and receive the liquidation value of their claims.The commissioner takes the position that,
although an insurance commissioner may choose to structure a rehabilitation
plan in that way in the proper exercise of its discretion, the commissioner is
not required to include such provisions in a rehabilitation plan.We agree with the commissioner.[9]

¶61Because the interested parties’ arguments strongly rely on Neblett,
we discuss the case in some detail.Neblett
arose out of an insurance rehabilitation proceeding in California.The validity of the rehabilitation plan at
issue was addressed first by the California supreme court in Carpenter
v. Pacific Mutual Life Ins. Co., 10 Cal. 2d 307, 74 P.2d 761
(1937).The pertinent facts are as
follows.Pacific Mutual Life Insurance
Company, a corporation engaged in the business of life, health, and accident
insurance, became insolvent after charging insufficient premiums for non-cancelable
accident and health policies.Id.
at 314-15.The state insurance
commissioner proposed a rehabilitation plan to prevent the losses caused by
those policies from spreading to the life insurance portion of the company’s
business and thereby forcing the entire company into liquidation.Id. at 315-16.Relevant here, the rehabilitation plan
provided for the creation of a new company, which restructured the policies in
a way that reduced the benefits provided to holders of non-cancelable accident
and health policies, but left unchanged the benefits provided to holders of
life insurance policies.Id. at
316-17.Under the plan, the
non-cancelable policyholders were given the option to adopt or opt out of the
plan, and those who opted out of the plan received the equivalent of what they
would receive upon liquidation.Id.
at 321-22.The trial court approved the
plan.Id. at 322.

¶62Appellants, three of whom owned non-cancelable health and
accident policies, argued in Carpenter that the plan constituted
an unconstitutional taking of property, unlawfully impaired their contractual
rights, and unlawfully discriminated against holders of non-cancelable accident
and health policies by treating them less favorably than holders of life
insurance policies.Id. at 329. The California supreme court rejected
these arguments.

¶63On certiorari review to the United States Supreme Court, the
appellants renewed their arguments made before the California supreme
court.In Neblett, the Supreme
Court rejected the appellants’ arguments and concluded that they failed to show
there was an unconstitutional taking of property because there is “no
constitutional right to a particular form of remedy” and they were “afforded an
alternative whereby they will receive damages for breach of their
contracts.”Neblett, 305 U.S. at
305.The Supreme Court also concluded
that an unlawful impairment of contract did not arise from the less favorable
treatment of holders of non-cancelable accident and health policies because
policyholders who rejected the plan were provided with an appropriate
remedy—the option to opt out of the plan on terms at least as favorable as they
would receive from a complete liquidation of the company.Id.We now turn to address the merits of the arguments made by the
interested parties.

¶64As we have indicated, the interested parties contend that the
United States Supreme Court in Neblett established a per se rule
requiring rehabilitation plans to grant policyholders the right to receive, at
a minimum, the liquidation value of their claims or “the right to opt out of
the plan and receive the liquidation value of their claims.”

¶65We find no support in Neblett for the interested parties’
contention that a rehabilitation plan is invalid as a matter of law unless
policyholders are given the option to opt out and receive at least the
liquidation value of their claims.Stated differently, we do not read Neblett as establishing “the broad
principle that a rehabilitation plan is per
se invalid unless every policyholder will fare as well in rehabilitation as
in liquidation.”Consedine v. Penn Treaty Network
Am. Ins. Co., 63 A.3d 368, 453 (Pa. Commw. Ct. 2012).Rather, the Supreme Court’s focus in Neblett
was on whether the rehabilitation plan at issue in that case was
invalid.As we indicated, the Court
rejected the appellants’ argument that the plan impermissibly treated some
policyholders more favorably than others, on the ground that all policyholders
had the option to opt out of the plan and receive the liquidation value of
their claims.Neblett, 305 U.S. at
304-05.Thus, the Supreme Court was
responding to a specific argument made by the appellants and was not purporting
to establish a rule that a rehabilitation plan is per se invalid unless,
similar to the plan at issue in Neblett, it permits policyholders to
receive the liquidation value of their claims or the right to opt out of the
plan.

¶66The interested parties cite several cases in support of their
contention that “courts are in agreement that policyholders must be able to opt
out and receive at least the liquidation value of their claims, or receive
liquidation value in the rehabilitation.”However, none of these cases advances the interested parties’ position.

¶67The interested parties cite Commercial National Bank v.
Superior Court, 14 Cal. App. 4th 393, 398, 17 Cal. Rptr. 2d 884 (1993),
where the court rejected a rehabilitation plan on the ground that it did not “satisfy
the Carpenter
standard.”However, the “Carpenter
standard” that the court was referring to was the requirement that
rehabilitation plans be reasonably related to the public interest and not
arbitrary or improperly discriminatory.See id.
The court did not refer to or
discuss Carpenter for the principle that rehabilitation plans must
afford policyholders the liquidation value of their claims, or the right to opt
out of the plan and receive the liquidation value of their claims.

¶68The interested parties also cite to Foster, 614 A.2d at
1093-94, in which the Pennsylvania supreme court stated that “under Neblett,
creditors must fare at least as well under a rehabilitation plan as they would
under a liquidation.”However, that statement
was made in response to specific arguments raised that are unrelated to the
issue we are addressing here and no legal analysis was conducted on the
topic.In any event, we are not bound to
adopt that court’s construction of Neblett.See State v. Muckerheide, 2007 WI 5,
¶7, 298 Wis. 2d 553, 725 N.W.2d 930 (“Although a Wisconsin court may
consider case law from such other jurisdictions, obviously such case law is not
binding precedent in Wisconsin, and a Wisconsin court is not required to follow
it.”).

¶69Moreover, Wisconsin’s rehabilitation statutory scheme does not
require that policyholders fare as well in rehabilitation as they would in
liquidation.The rehabilitation
statutory scheme provides the commissioner with minimal guidance as to how to
structure a rehabilitation plan and certainly no requirement that each plan
must provide policyholders the liquidation value of their claims, or the right
to opt out and receive the liquidation value of their claims.Rather, as we have explained thus far, Wis. Stat. ch. 645 demonstrates the
legislature’s clear and unequivocal intent to maximize the commissioner’s
flexibility in formulating a rehabilitation plan tailored to the circumstances
of the particular case, which in this case may mean that not all policyholders
are treated the same as they would be in liquidation.See Introductory
comment to Wis. Stat. § 645.32,1967 Wis. Laws, ch. 89, § 17.

¶70For all of the above reasons, we reject the interested parties’
argument that the rehabilitation plan is unlawful because it does not provide
policyholders with the liquidation value of their claims or, in the
alternative, the right to opt out of the plan and receive the liquidation value
of their claims.

E.Impermissible liquidation

¶71The interested parties next challenge the rehabilitation plan
on the ground that it is a “de facto liquidation” and not a
rehabilitation.In support, the
interested parties maintain that the segregated account is insolvent and that
the commissioner does not intend to infuse new capital into the segregated
account.Instead, as the interested
parties explain, the commissioner intends to conduct an “orderly run-off … of
the liabilities allocated to the Segregated Account” and to terminate the
account thereafter.Based on the above
grounds, the interested parties argue that the plan is contrary to one of the
stated purposes of the rehabilitation statutes, which is to “reform and revitalize”
the insurer to the point where it is no longer insolvent.Wis.
Stat. § 645.33(2).We view
this argument as an attack on the commissioner’s discretionary authority to
fashion a rehabilitation plan that effectuates the purposes of the delinquency
statutes in general, and the rehabilitation statutory scheme in
particular.We are not persuaded.

¶72Turning first to the interested parties’ argument that the
rehabilitation plan is a de facto liquidation because the segregated account is
insolvent, we have already addressed and rejected that argument.As we have explained, the segregated account
is adequately capitalized by the secured note and the reinsurance agreement,
which provide policyholders in the segregated account on-demand access to the
assets held in the general account.

¶73We also understand the interested parties to be arguing that
the commissioner’s stated intent to run-off the liabilities in the segregated
account and terminate the account thereafter is contrary to the purposes of
rehabilitation.Their argument is too
narrow in focus because it does not take into consideration the overall purpose
of the rehabilitation, which, as we have discussed, is to reform and revitalize
Ambac for the benefit of all policyholders, including the policyholders in the
segregated account.Although the
segregated account is a separate insurer for purposes of the rehabilitation, see Wis.
Stat. § 611.24(3)(e), the segregated account is in actuality a part
of Ambac and therefore what is in the best interests of Ambac as a whole is
also in the best interests of the policyholders in the segregated account.As the commissioner has explained, the
creation of the segregated account and the decision to pursue a targeted
partial rehabilitation is in the best interests of segregated account
policyholders because it protects Ambac’s claims-paying resources from the
contractual default triggers that likely would have resulted in Ambac’s
financial collapse.

¶74We acknowledge that the commissioner was creative in its
approach, whereby the commissioner transferred Ambac’s liabilities into a
segregated account and then pursued a targeted partial rehabilitation of the
segregated account. The approach adopted
by the commissioner here differs from the approach used by insurance
commissioners in other cases where the assets
of the company were transferred to a new company.See Carpenter, 10 Cal. 2d at 332 (“[I]n working out a plan of
rehabilitation a new corporation [may] be formed to receive the assets of the
old.”).The approach here also differs
from the approach taken in prior insurance delinquency proceedings in Wisconsin
where the commissioner “commenc[ed] rehabilitation of the insurer as a whole,
then creat[ed] a segregated account” and “mov[ed] [the segregated account] out
of rehabilitation to carry on a part of the insurer’s business.”Here, in contrast to the plans described
above, the commissioner placed the liabilities and not the assets in the
segregated account and pursued a targeted partial rehabilitation of the
segregated account.However, the
interested parties have not shown that the decision to place Ambac’s
liabilities in a segregated account was contrary to law or to the interests of
the policyholders in the segregated account.See Wis. Stat. § 611.24(2) (“The commissioner shall approve
[a corporation’s decision to establish a segregated account] unless he or she
finds that the segregated account would be contrary to the law or the interests
of any class of insureds.”).

¶75We are not persuaded by the interested parties’ apparent
contention that the decision to run-off the liabilities in the segregated
account and not to infuse capital into the segregated account is tantamount to
a liquidation of the insurer.We provide
two reasons why the interested parties have not demonstrated that the plan is
actually a liquidation rather than a rehabilitation.

¶76First, although the commissioner’s stated intent is to run-off
the liabilities in the segregated account, we have explained that segregated
account claims will be satisfied partly in cash and partly in surplus
notes.Whether policyholders in the segregated
account will receive the full cash value of their claims remains to be
seen.However, two points are worth
mentioning, namely, that the market may improve to a degree that the claims may
be substantially if not fully paid in cash in due time; and second, that “the
exigencies attendant to a major commercial insolvency and the goals of
rehabilitation necessitate the reality that ‘individual interests may need to
be compromised in order to avoid greater harm to a broader spectrum of
policyholders and the public.’”Foster,
614 A.2d at 1094 (quoting another source).

¶77Second, the evidence the interested parties rely on in arguing
that the plan is in essence a liquidation fails to show that it is no longer
possible to preserve the business of Ambac.In Wisconsin, rehabilitation is properly pursued “whenever [the
commissioner] believes that the insurer may be successfullyrehabilitated without substantial increase in
the risk of loss to creditors of the insurer or to the public.”Wis.
Stat. § 645.31(1); see also Carpenter, 10 Cal. 2d at 329
(“The public has a grave and important interest in preserving the business if
that is possible.Liquidation is the
last resort.”).The record before us
demonstrates that it remains possible to preserve Ambac’s business, which
ultimately is in the best interests of all involved, including those whose
policies have been allocated to the segregated account.

¶78In sum, we conclude that the commissioner properly exercised
its discretion in pursuing a targeted partial rehabilitation and that the
interested parties have not shown that the rehabilitation plan is more properly
characterized as a liquidation rather than a rehabilitation.

F.Unlawful Transfer of Assets

¶79The interested parties argue that the rehabilitation plan
separates “valuable assets” from the liabilities allocated to the segregated
account, in violation of Wis. Stat. §
611.24(3)(b).They also argue that the
plan transfers assets from the segregated account to the general account
without “fair consideration,” in violation of § 611.24(3)(h).We disagree with both arguments.

¶80To the extent that the interested parties are reframing their
arguments that the segregated account is inadequately capitalized because it
contains only liabilities and no assets, and that the segregated account is
unlawful because only a portion of the segregated account claims are paid in
cash, we do not reconsider those arguments here.

¶81Turning to the interested parties’ argument that the plan
violates Wis. Stat. § 611.24(3)(b),
we begin by considering the language of the statute, which provides in relevant
part:

The income and assets attributable to a segregated
account shall always remain identifiable with the particular account but unless
the commissioner so orders, the assets need not be kept physically separate
from other assets of the corporation.

We understand the interested
parties to argue that the plan violates § 611.24(3)(b) because assets
attributable to the segregated account are kept in the general account and thus
do not remain “identifiable” with the segregated account.However, the interested parties provide no reason
why keeping assets in the general account means that those assets are no longer
identifiable with the segregated account.As the language of the statute makes clear, the assets attributable to
the segregated account need not be kept physically separate from the assets
attributable to the general account.

¶82In any event, as we have already explained, the commissioner
had sound reasons for keeping the assets attributable to the segregated account
in the general account.It was
imperative, according to the commissioner, that all assets remain in the
general account because transferring the assets to the segregated account would
have triggered acceleration and early termination provisions, causing massive
losses that would have made it substantially more difficult if not impossible
to save Ambac from insolvency.The
commissioner should pursue rehabilitation as opposed to liquidation whenever
possible and structuring the plan in a way that likely would have prevented the
commissioner from pursuing rehabilitation would not be in keeping with that
general principle.See Carpenter, 10
Cal. 2d at 329.

Transfer. The
corporation may by an identifiable act transfer assets for fair consideration
among the segregated accounts, the general account and any trust accounts of
the corporation.

The interested parties argue
that the plan violates § 611.24(3)(h) because Ambac “failed to prove it
provided any compensation for [the transfer of] assets, let alone the ‘fair
consideration’ required by” the statute.

¶84We conclude that the statute does not apply here because, as
the interested parties concede, it is the liabilities that are being transferred
to the segregated account and not the assets.The interested parties state that under the plan the “income and other
assets associated with [the segregated account] policies, including future
premium payments and subrogation recoveries, remain with the [g]eneral [a]ccount,” and therefore the interested
parties implicitly concede that the assets have always resided in the general
account and have neverbeen transferred
to another account.(Emphasis
added.)

¶85Moreover, even if there had been a transfer of assets under the
plan, the interested parties have not developed an argument as to why any
alleged transfer of assets was not for fair consideration or in what form that
consideration would take, particularly given that the segregated account has
on-demand use of all of the assets held in the general account.

G.Made Whole Doctrine

¶86The interested parties contend that the circuit court “erred in
approving Section 4.04(h) of the [rehabilitation] [p]lan” because it violates
Wisconsin’s made whole doctrine and “leads to inequitable results.”[10]Section 4.04(h) of the plan states:

(h) Assignment of Rights.Without prejudice to (i) the terms and provisions of the applicable
Policy and any related underlying instrument(s) or contract(s) and
(ii) any assignment previously executed, whether pursuant to a Proof of
Policy Claim Form or otherwise, upon receipt of a payment with respect to a
Permitted Policy Claim, each such Holder shall be deemed to have assigned its
rights relating to that payment under the underlying instrument(s) or contract(s)
to [Ambac].

We review the circuit court’s
approval of Section 4.04(h) of the plan for an erroneous exercise of
discretion.

¶87The interested parties take the position that Section 4.04(h)
of the plan violates the made whole doctrine because “it requires policyholders
to assign their contractual rights to [Ambac] before they are fully compensated for their losses.”In an overlapping argument, the interested
parties argue they were not fully compensated for their losses before assigning
their contractual rights to Ambac under Section 4.04(h) of the plan because, in
exchange for the assignment of those rights, they received surplus notes that
are worth only “cents on the dollar.”The interested parties contend that “[p]ayment of cents on the dollar,
by definition, does not allow a policyholder to be ‘fully compensated for his
or her losses,’” as required under the made whole doctrine.

¶88In response, the commissioner argues that the interested
parties have failed to show that the made whole doctrine applies in the
rehabilitation context.In their reply
brief, the interested parties assert that the made whole doctrine should apply
because the commissioner has not provided a reason why the doctrine could not
be applied in the rehabilitation context.

¶89As the party advancing the claim, the interested parties carry
the burden of showing that the made whole doctrine applies to rehabilitation
proceedings.They have not met their
burden.

¶90The made whole doctrine is ill-suited for these
proceedings.Under the made whole
doctrine, “an insured must be made whole before the insurer may exercise
subrogation rights against its insured.”Ruckel v. Gassner, 2002 WI 67, ¶4, 253 Wis. 2d 280, 646
N.W.2d 11.However, as we have
indicated, the purpose of rehabilitation proceedings is not to make each
policyholder whole but to apportion unavoidable losses in a manner that is fair
and equitable to policyholders, creditors, and the public in general.SeeWis. Stat. § 645.01(4)(d).It makes no sense to apply the doctrine in
the context of rehabilitating an insurer,particularly under the specific facts of this case, because in order to
maximize claims-paying resources, it may be essential, as is the case here,
that policyholders assign subrogation rights to the insurer before they have
been made whole.

¶91Moreover, it is axiomatic that the commissioner, in the
reasonable exercise of the state’s police power, may structure a rehabilitation
plan that has the potential to adversely affect the interests of individual
policyholders when the plan advances the broader interests of the
policyholders, the creditors, and the public as a whole.See American Eagle Ins. Co. v. Wisconsin Ins.
Sec. Fund, 2005 WI App 177, ¶37, 286 Wis. 2d 689, 704 N.W.2d 44
(the State may exercise the powers vested in it for the general good of the
public even when doing so has the potential to impair contracts); see also Caminetti v. Pacific Mut. Life Ins. Co., 22 Cal. 2d 344, 361,
139 P.2d 908 (1943) (“[T]he power of the commissioner with respect to statutory
proceedings against insolvent or delinquent insurers is of general public
concern.”).

¶92In a separate argument, the interested parties complain that
Section 4.04(h) “leads to inequitable results.”The interested parties argue that the provision “deprives them of the
benefit of the bargain they struck” with Ambac by “shifting loss from [Ambac],
which received and continues to receive a substantial premium to assume that
loss, to the policyholders in the Segregated Account, who paid [Ambac] to
protect against loss.”

¶93In response, the commissioner maintains that Section 4.04(h) of
the rehabilitation plan does not lead to inequitable results because Ambac’s
exercise of subrogation rights has the effect of maximizing claims-paying
resources to the benefit of all policyholders.The commissioner acknowledges the “theoretical possibility” that Section
4.04(h) might cause “an unfair result in isolated future situations.”However, the commissioner asserts that, in
those “unlikely circumstances” where the application of that provision leads to
inequitable results, the commissioner will attempt to work out an alternative
resolution with the policyholder under Section 3.06 of the plan.[11]In approving the plan, the circuit court
found that:

If any inequitable situations
arise in the future with regard to recoveries, it is [the commissioner’s]
intent to work out efficient solutions with policyholder trustees for fair
allocation of such recoveries…. Article 3.06 of the Plan provides a mechanism
for doing so.

We are satisfied that the
commissioner and the circuit court reasonably determined that, to the extent
that Section 4.04(h) may lead to inequitable results, the plan contains
adequate provisions to address those situations.

¶94Finally, the interested parties argue that Section 4.04(h) may
lead to inequitable results because any amount that Ambac recovers through the
exercise of its subrogation rights will be allocated to the general account and
not “reinvested back into the Segregated Account.”We view the interested parties’ equity
arguments as simply an attempt to reframe their earlier attack on the
capitalization of the segregated account.As we have already explained, the commissioner had valid reasons for
keeping recoveries in the general account, namely, to prevent the triggering of
additional claims and the creation of additional demands on the resources
available to pay claims, which would have jeopardized the interests of
policyholders in both the general account and segregated account.The interested parties fail to explain why
the capitalization structure chosen by the commissioner, after substantial
consultation with experts in the insurance and financial industries, is
inequitable in the context of the entire rehabilitation plan.Accordingly, we conclude that the circuit
court properly exercised its discretion in approving Section 4.04(h) of the
rehabilitation plan.

H.Immunity, Indemnification, and Injunction
Provisions

¶95The interested parties contend that the commissioner exceeded
its authority under the rehabilitation statutes by including immunity and
indemnity provisions in the rehabilitation plan that confer greater protections
than permitted under Wis. Stat. § 645.08(2)
and the official comments to Wis. Stat. § 645.34(1).The specific provisions at issue are Sections
8.01, 9.01, and 9.02 of the rehabilitation plan.[12]We understand the interested parties to be
arguing that any person or entity not listed in § 645.08(2)
as being protected from civil liability, cannot be protected by the
immunity and indemnification provisions under the rehabilitation plan,
including “AAC, its affiliates, management, and parent corporation.” In
addition, the interested parties read the immunity and indemnification
provisions in the plan as applying “to all claims not expressly provided for in
the Plan,” and contend that § 645.08(2) “permits a release only for acts
or omissions in the course of duties conducted pursuant to” Wis. Stat. ch. 645. We also understand the interested parties to
be arguing that the immunity and indemnification provisions provide greater
protections than permitted because the official comments to § 645.34(1) provide that the
commissioner “should not be permitted to escape actions and proceedings
instituted against the insurer,” and, according to the interested parties, the
plan allows the commissioner to do so.Comment to Wis. Stat. § 645.34(1),
1967 Wis. Laws, ch. 89, § 17.We
reject the interested parties’ arguments.

No civil cause of action may arise against and no civil
liability may be imposed upon the state, commissioner, special deputy
commissioner, rehabilitator or liquidator, or their employees or agents … for
an act or omission by any of them in the performance of their powers and duties
under this chapter ….This subsection
does not apply to a civil cause of action arising from an act or omission that
is criminal under ch. 943.

Wis. Stat. § 645.08(2).

¶97We reject the interested parties’ construction of Wis. Stat. § 645.08(2) as barring a
rehabilitation plan from extending immunity to individuals and entities not listed
in the statute.We find no such limiting
language in the statute.In addition,
the interested parties’ construction of the statute would not be in keeping
with the flexibility and broad discretion Wis.
Stat. ch. 645 confers on the commissioner in fashioning an effective
rehabilitation plan.As the commissioner
explains in its brief on appeal, the immunity and indemnification provisions
are necessary to protect the entities that the commissioner has selected to
carry out the rehabilitation plan.This
is a necessary and laudable goal.It is
incumbent on the commissioner to protect these entities and individuals from
the threat of civil liability arising out of actions taken in carrying out the
rehabilitation plan.Without extending
such protection, it is hard to imagine who or what entity would be willing to
expose itself to civil liability when the government calls upon it to assist in
the rehabilitation of an insurer.

¶98The circuit court made the following finding to this effect:

The Plan provisions providing certain civil immunities
to those responsible for administering the Plan, including the management
services provider [Ambac], are necessary to facilitate frank and open
assessment and advice from individuals charged with administering the Plan,
with the assurance that their views and expertise will not lead to civil
liability.

The interested parties do not
challenge the court’s finding or explain why the commissioner lacked a rational
basis to extend immunity and indemnification protections to individuals and
entities not identified in Wis. Stat. § 645.08(2).

¶99In addition, the interested parties ignore that Wis. Stat. § 645.08(2) extends
immunity and indemnification to “agents” of the “commissioner, the special
deputy commissioner, and of the rehabilitator.”Here, Section 9.01 of the rehabilitation plan provides immunity and
indemnification protections to certain agents of the commissioner, including
“attorneys, financial advisors, investment bankers, consultants and any other
advisors or experts.”The interested
parties do not explain why individuals acting in their capacity as agents do
not fall under the protections of § 645.08(2).

¶100The interested parties also misconstrue the immunity and
indemnification provisions as applying “to all claims not expressly provided
for in the Plan.”The plain language in
Articles 8 and 9 expressly limits the application of the immunity and
indemnification provisions to claims “based upon any act, omission,
transaction, or other activity of any kind or nature, made in connection with,
or arising out of, the Segregated Account, AAC or the General Account with
respect to the Segregated Account, the Proceeding, this Plan … or the administration
of this Plan.”We do not agree with the
interested parties that these provisions are so sweeping in scope as to be
unlawful under Wisconsin law.To the
contrary, these provisions apply only to acts taken to carry out therehabilitation plan.We conclude that the commissioner properly
exercised its discretion in protecting the entities and individuals involved in
this very complicated task of reforming and revitalizing Ambac.

¶101The interested parties also contend that the immunity and
indemnification provisions in the rehabilitation plan confer greater
protections than permitted. The interested parties rely on the comment to Wis. Stat. § 645.34(1),[13]
which provides in relevant part:

The rehabilitator should not be permitted to escape
actions and proceedings instituted against the insurer—if he needs to do that
the insurer should be liquidated, not rehabilitated—but he should be given time
to reconsider strategy.

Comment to Wis. Stat. § 645.34(1), 1967 Wis.
Laws, ch. 89, § 17.The interested
parties point to no evidence demonstrating that the intent of the commissioner
is to “escape actions and proceedings instituted against the insurer.”Rather, as we have discussed, the stated
intent of the commissioner is to protect those involved in carrying out the
rehabilitation plan from civil liability.Moreover, as we explain more fully below, the circuit court is expressly
authorized under Wis. Stat. § 645.05(1)(f)
to enter an injunction to prevent “the institution or further prosecution of
any actions or proceedings” during the administration of the rehabilitation
plan.

¶102In a separate argument, the interested parties contend that the
injunction provisions in Section 8.01 of the rehabilitation plan are
overbroad.Specifically, the interested
parties argue that the commissioner has not demonstrated that extending the
injunction protection provisions to Ambac’s parent company and other Ambac
affiliates is necessary and proper to effectuate a successful
rehabilitation.The interested parties
also argue that the circuit court erred in approving Section 10.02 of the plan,
which provides that the March 2010 temporary injunction will remain in effect
throughout the administration of the plan.We reject these arguments.

¶103We are satisfied that the court properly exercised its discretion
in determining that the injunction is not overly broad and that the March 2010
temporary injunction should remain in effect throughout the administration of
the plan.The circuit court has the
power to take action to prevent persons or entities from jeopardizing the
success of the insurance rehabilitation.For example, the court may grant a permanent injunction, as it did here,
to prevent, among other things: (1) interference with the rehabilitation
proceedings; (2) waste of the insurer’s assets; (3) the institution
of actions or proceedings; and (4) “threatened or contemplated action that
might lessen the value of the insurer’s assets or prejudice the rights of
policyholders, creditors, or shareholders, or the administration of the
proceeding.”Wis. Stat. § 645.05(1)(c), (d), (f), and (k).We conclude that the circuit court properly
issued an injunction that is “necessary and proper” to prevent the institution
of proceedings that may interfere with the insurance rehabilitation and waste
or lessen the value of Ambac’s assets, to the detriment of policyholders,
creditors, and shareholders alike.[14]See id.

I.Discovery, Scheduling, and Admission of
Evidence

¶104The interested parties contend that the rehabilitation proceedings
and plan approval hearing were fundamentally unfair and denied the interested
partiestheir procedural due process
rights under the Fourteenth Amendment to the United States Constitution on
three grounds: (1) the circuit court did not permit the interested parties
to conduct discovery; (2) the circuit court expedited the hearing on the
approval of the plan to the detriment of the interested parties; and
(3) the circuit court admitted the disclosure statement and liquidation analysis
in violation of the rules of evidence prohibiting the admission of inadmissible
hearsay.We address and reject each
ground in turn.

¶106The interested parties made several requests to the circuit court
at various times throughout the rehabilitation proceedings to conduct
discovery, primarily in the context of motions to intervene.The circuit court denied their requests to
conduct discovery because: the interested parties lacked standing as parties to
seek discovery in this rehabilitation proceeding; there is no right to
discovery in a rehabilitation proceeding; and the commissioner appropriately
exercised its discretion in denying the interested parties’ discovery requests.

¶107The interested parties assert on appeal that, pursuant to Wis. Stat. § 804.01(2)(a), they
were entitled to conduct discovery prior to the plan approval hearing.In what appears to be a separate argument,
the interested parties argue that the circuit court denied their procedural due
process right to a meaningful opportunity to be heard because they were not
permitted to conduct discovery.They
also contend that “national standards” governing rehabilitation proceedings
“support permitting policyholders and other interested parties an opportunity
to challenge a rehabilitation plan after discovery.”We reject these arguments.

¶108Wisconsin Stat. § 804.01(2)(a)[15]
governs the right of “[p]arties” to obtain discovery in civil actions.In arguing that they are entitled to
discovery in this rehabilitation proceeding, the interested parties assume in
their brief-in-chief that the discovery statute applies to them.They are wrong.The circuit court determined that the
interested parties were not “parties” to this proceeding and denied their
motions to intervene on that basis.On
appeal, the interested parties do not challenge the circuit court’s
determination that they are not parties to these proceedings.This proves fatal to the interested parties’
argument because § 804.01(2)(a) limits the right to discovery to “parties”
and, as the circuit court correctly determined, the interested parties are not
“parties” within the meaning of the statute.Because the interested parties are not parties within the meaning of the
discovery statute, we conclude that the circuit court properly denied the
interested parties’ requests for discovery.

¶109As we indicated, the interested parties also argue that their due
process rights were violated because the circuit court denied their requests
for discovery.The interested parties
argue that, to satisfy due process requirements, the court must avail them a
meaningful opportunity to be heard on the merits of the rehabilitation
plan.See Bunker v. LIRC, 2002
WI App 216, ¶19, 257 Wis. 2d 255, 650 N.W.2d 864 (“The fundamental
requirement of procedural due process is the opportunity to be heard at a
meaningful time and in a meaningful manner.”). They argue that, by denying them
the right to discovery, they lacked sufficient time and information to evaluate
the plan, which, in turn, denied them the right to be meaningfully heard.We disagree.

¶110To the extent that the interested parties have a procedural due
process right to be meaningfully heard, we conclude that the circuit court
provided the interested parties with far more due process than what is required
under Wisconsin’s rehabilitation statutory scheme.See State v. Hardwick, 144 Wis. 2d
54, 58, 422 N.W.2d 922 (Ct. App. 1988) (“Due process is flexible and requires
such procedural protections as the particular situation demands.”).All that is required under Wis. Stat. § 645.33(5), is that
notice be provided and a hearing held as prescribed by the circuit court.There is no dispute that the interested
parties received notice and that a hearing was held on the rehabilitation
petition.

¶111As we indicated, the circuit court provided significantly more
process to the interested parties than Wis.
Stat. § 645.33(5) requires.The interested parties were given an opportunity prior to the plan
approval hearing to file written objections to the proposed plan and to submit
factual questions to the commissioner, to which the commissioner responded in
advance of the hearing.At the plan
approval hearing, the interested parties had the opportunity to present their
own witnesses and to cross-examine the commissioner’s witnesses.The interested parties called James Schacht,
a former Illinois insurance regulator, to testify at the hearing.Over the course of the five-day hearing, the
interested parties thoroughly cross-examined the commissioner’s witnesses,
including Peterson, the commissioner’s primary witness at the hearing.The commissioner also provided the interested
parties with hundreds of pages of documents pertinent to the rehabilitation
plan prior to the hearing.Thus, as we
can see, the interested parties received far greater procedural protections
than required in a rehabilitation proceeding and took full advantage of those
opportunities.

¶112We also reject the interested parties’ claim that “national
standards” governing rehabilitation proceedings support providing the
interested parties with the opportunity to conduct discovery.Setting aside for the moment that we are
unaware of any “national standards” governing discovery in rehabilitation
proceedings, the interested parties are correct that case law from other
jurisdictions demonstrates that circuit courts may, in the proper exercise of their discretion, allow interested
parties to conduct discovery in rehabilitation proceedings.However, that does not mean that circuit
courts are required to grant discovery
rights to non-parties.Even the cases
the interested parties point to in support of their contention that they have
the right to conduct discovery in this rehabilitation proceeding supports the
commissioner’s position that the right to discovery is not mandatory, but
rather left to the discretion of the circuit court.See Grode v. Mutual Fire, Marine & Inland
Ins. Co., 572 A.2d 798, 801-02 (Pa. Commw. Ct. 1990); Carpenter,
10 Cal. 2d at 321-22.

¶113Finally, we agree with the circuit court that the interested
parties are not entitled to discovery in this rehabilitation proceeding.We explained earlier that this is a special
proceeding under Wis. Stat. ch.
645.Generally, the rules of civil
procedure “govern procedure and practice in circuit courts of this state in all
civil actions and special proceedings … except
where different procedure is prescribed by statute or rule.”Wis.
Stat. § 801.01(2) (emphasis added).The rules of civil procedure, including the rules pertaining to
discovery, do not apply to rehabilitation proceedings because ch. 645
prescribes its own rules of procedure in insurer delinquency proceedings.See Wis. Stat. § 645.33(5).The legislature did not intend to bind the
court to the rules of civil procedure when applying these rules would transform
an informal management task into a formal and cumbersome legal task.See Introductory
comment to Wis. Stat. § 645.32,
1967 Wis. Laws, ch. 89, § 17.

¶114Accordingly, for all of the above reasons, we conclude that the
circuit court properly exercised its discretion in denying the interested
parties’ requests for discovery.

2.Hearing Schedule

¶115The interested parties next contend that they were denied due
process when the court set an expedited plan approval hearing schedule that
allegedly provided the interested parties with insufficient time to review the
rehabilitation plan and the disclosure statement, and only one day to review
the liquidation analysis.At the October
2010 scheduling hearing, the commissioner proposed a condensed schedule for
matters leading up to the plan approval hearing.The interested parties opposed the
commissioner’s proposed schedule on the primary ground that the schedule did
not provide them sufficient time to conduct discovery.We reject the interested parties’ argument.

¶116We note first that the only reason the interested parties provide
as to why they needed additional time to prepare for the hearing was to conduct
discovery.But the interested parties
knew that the circuit court had previously ruled that the interested parties
were not entitled to discovery.The
interested parties fail to explain why they were entitled to additional time to
prepare for the hearing, in light of the court’s prior rulings denying their
requests for discovery.As we have
already concluded, the interested parties had no right to conduct discovery in
this rehabilitation proceeding and therefore their contention that the court
violated their due process rights by scheduling an expedited hearing lacks
merit.

¶117The interested parties also have not shown that they were
prejudiced by the circuit court’s decision to set an expedited hearing
schedule.The interested parties contend
that the commissioner requested an expedited hearing in an “attempt to gain a
strategic advantage.”The interested
parties do not identify any evidence to support this assertion.In addition, the interested parties fail to
cite to any authority that required the commissioner to disclose these
documents prior to the plan approval hearing.As we have concluded above, the circuit court provided the interested
parties with greater procedural due process rights than what is required under
Wisconsin’s rehabilitation statutory scheme.Accordingly, we conclude that the circuit court properly exercised its
discretion in adopting the expedited hearing schedule proposed by the
commissioner.

3.Admission of Disclosure
Statement and Liquidation Analysis

¶118The interested parties contend that the circuit court erred in
admitting the disclosure statement and the liquidation analysis because they
are inadmissible hearsay under the rules of evidence.The circuit court admitted the documents into
evidence on the grounds that it had authority to take judicial notice of the
documents and that the documents were admissible under the public records
exception to the hearsay rule.

¶119We do not address whether the grounds the circuit court relied on
for admitting the documents were correct because we conclude, on alternate
grounds, that the interested parties have not shown that the circuit court’s
ruling affected a substantial interest of a party to the proceeding.See Correa v. Farmers Ins. Exch., 2010
WI App 171, ¶4, 330 Wis. 2d 682, 794 N.W.2d 259 (“[W]e may affirm a
circuit court for any reason, even if not relied on by either the circuit court
or raised by the lawyers.”).

¶120We focus our analysis on Wis.
Stat. § 901.03, which “contains the provisions of the Rules of
Evidence relating to objections and the review of errors made in the admission
or exclusion of evidence.” Virgil
v. State, 84 Wis. 2d 166, 189, 267 N.W.2d 852 (1978).The statute states in relevant part:

(1)Effect of erroneous
ruling. Error may not be predicated upon a ruling which admits or
excludes evidence unless a substantial
right of the party is affected; and

(a) Objection. In case the ruling is one admitting evidence, a
timely objection or motion to strike appears of record, stating the specific
ground of objection, if the specific ground was not apparent from the context.

Wis. Stat. § 901.03(1)(a)
(emphasis added).

¶121Reasonably read, Wis. Stat. § 901.03(1)
requires that the objector to the admission or exclusion of evidence be a
“party” to the proceeding.This proves
fatal to the interested parties’ argument.As we have already concluded, the interested parties are not “parties”
to this rehabilitation proceeding.Accordingly, they do not possess the right to object to the circuit
court’s admission of the challenged documents.

¶122Moreover, even if the interested parties had been “parties” to the
proceeding, the interested parties have not argued or shown that the admission
of the challenged documents affected “a substantial right.”The interested parties did not object to the
admission of the challenged documents in the circuit court on the ground that
their substantial rights were being affected by the admission of the documents,
nor have they addressed the topic in their consolidated brief-on-appeal. To the
extent that the interested parties may be contending that the admission of the
documents violated their procedural due process rights, we have already
concluded that the circuit court provided the interested parties with greater
protections than required under the rehabilitation statutory scheme.

IV.Individual Briefs

¶123We turn now to address the arguments raised in the individual
briefs that were not addressed in the consolidated brief.

A.Allocation of
Policies to the Segregated Account

¶124Various interested parties appear to be challenging the allocation
of their respective policies to the segregated account.To the extent that the interested parties are
challenging the commissioner’s discretionary determinations about which policies
to allocate to the segregated account, none of the interested parties dispute
that the commissioner’s decisions as to which policies to allocate to the
segregated account were “consistent with [the commissioner’s] objectives to
narrowly tailor the [p]roceeding to preserve the financial stability provided
by [Ambac] to its policyholders.”Indeed, the commissioner worked closely with various experts for weeks
to identify the policies or categories of policies that met the commissioner’s
criteria for allocation to the segregated account.In identifying these policies, the
commissioner considered the broader interests of the policyholders, the
creditors and the public in general, rather than the narrow interests of
particular policyholders, as the interested parties insist the commissioner should
do here.SeeWis. Stat. § 645.01(4).“The Commissioner is best qualified to
perform the rehabilitation … process as he has no special interest in the
outcome except to administer the matter for the maximum benefit of all
interested parties.”Minor
v. Stephens, 898 S.W.2d 71, 76 (Ky. 1995).Accordingly, the interested parties do not
persuade us that the commissioner, in consultation with experts in the field,
abused its discretion in determining which policies to allocate to the
segregated account.[16]

B.Long-Term Claimants

¶125Wells Fargo Bank, N.A., as trustee for the LVM bondholders (LVM
bondholders) and Eaton Vance argue that the provision in the rehabilitation
plan, whichprovides that policyholders
will receive 25% of their claims in cash and 75% in surplus notes,
discriminates against the long-term policyholders to the benefit of the
short-term policyholders.The effect of
this provision, according to the LVM bondholders and Eaton Vance, is that, in
the event that there are insufficient funds to pay all policyholders, the
short-term policyholders will receive the 25% cash percentage, and the
long-term policyholders will receive a smaller cash percentage, or no cash
percentage at all.In essence, the LVM
bondholders and Eaton Vance challenge the commissioner’s exercise of discretion
in its formulation of this provision of the rehabilitation plan.Once again, we are not persuaded.

¶126The commissioner explains in its brief on appeal that the primary
reason it commenced rehabilitation proceedings was to prevent short-term policyholders
“from consuming a disproportionate share of Ambac’s resources to the
disadvantage of” long-term policyholders.According to the commissioner, it sought to “balance the competing
demands” of the short-term policyholders with the long-term policyholders “in a
way that was fair to both.”In support
of its claim on appeal that the plan fairly balances the competing interests of
policyholders, the commissioner points to this finding made by the circuit
court in approving the rehabilitation plan:

The testimony at the hearing demonstrates that the Plan
fairly balances and protects between the competing interests of policyholders
with ‘long-tail’ interests and those having ‘short-tail’ interests.Certain of the objectors with ‘short-tail’
interests argued that the Plan is too conservative regarding the percentage of
cash being distributed in early years; conversely, objectors with ‘long-tail’
interests argued that the Plan distributes cash too rapidly …. While neither
extreme is satisfied by the intermediate balance struck by the Rehabilitator
pursuant to the Plan, the Court finds that the balance struck by the
Rehabilitator is fair and reasonable under the circumstances.

The interested parties do not
claim that the court’s finding is clearly erroneous.

¶127Based on the above factual finding and the circuit court’s
rationale, generally speaking, we are satisfied that the circuit court properly
determined that the commissioner acted reasonably in balancing the competing
interests of short-term and long-term policyholders.We turn now to address and reject the
specific arguments made by the LVM bondholders and Eaton Vance that the
rehabilitation plan discriminates against long-term policyholders.

¶128The LVM bondholders and Eaton Vance assert that the commissioner
unlawfully discriminated against long-term policyholders because long-term
policyholders and short-term policyholders are not treated equally with respect
to the payment of permitted claims.The
problem with this assertion is that nothing in the statutes requires that
long-term policyholders be treated equal
to the short-term policyholders.Although policyholders are to be treated equitably under Wis. Stat. § 645.01(4)(d),
a policyholder may be treated equitably without being treated equally.The difference between “equitable” treatment
and “equal” treatment is that equitable means fair treatment, whereas equal
means the same treatment.See Webster’s
II New College Dictionary 380-81 (1999).Thus, § 645.01(4)(d) does not require that all policyholders
receive the same treatment.

¶129The LVM bondholders and Eaton Vance next argue that the
commissioner discriminated against long-term policyholders by formulating a
rehabilitation plan that does not address whether claims that are expected to
mature after the June 2020 scheduled maturity date will be paid.We understand the argument to be that the
commissioner abused its discretion by failing to include in the plan any
provisions regarding the treatment of claims expected to mature after June
2020.We reject this argument.

¶130The LVM bondholders and Eaton Vance ignore two key provisions that
advance the interests of long-term policyholders.First, the plan “allows for amendment between
now and 2020 to adjust payments under the Surplus Notes” to prevent a situation
where only the short-term policyholders receive an initial cash
percentage.Second, the plan allows the
commissioner to “assess the need to modify [the June 2020 maturity] date to
allow [for the] continuation or reissu[ance] of Surplus Notes after 2020.”As is readily apparent from the above
provisions, the commissioner contemplates determining at a later date whether
to modify the scheduled maturity date and making adjustments where needed to
protect the interests of policyholders who have claims expected to mature after
the scheduled maturity date.This type
of flexibility is key to protecting the interests of long-term
policyholders.Although the plan does
not guarantee that long-term policyholders will receive the initial cash
percentage for their claims, the commissioner kept the initial cash percentage
as low as it was to maximize the likelihood that there will be sufficient funds
to pay the initial cash percentage to both short-term and long-term
policyholders.We must defer to the
commissioner’s extensive experience and expertise in determining the best
approach to protecting the interests of long-term policyholders.

¶131The LVM bondholders next argue that the commissioner failed to
take into account the “worst-case” scenario when establishing the initial 25%
cash percentage.Rather, according to
the LVM bondholders, the commissioner inexplicably considered only a
“better-than-worst-case” financial scenario.We are not persuaded.The LVM
bondholders once again ignore the broad discretion granted to the commissioner
in formulating a rehabilitation plan and fail to explain, within the context of
the entire plan, how not considering the “worst-case” scenario in establishing
the 25% cash percentage was an abuse of discretion.[17]Moreover, the LVM bondholders provide no
legal authority suggesting that the commissioner was required to set the
initial cash percentage based on a worst case scenario and therefore we do not
further address this argument.See State
v. Pettit, 171 Wis. 2d 627, 646, 492 N.W.2d 633 (Ct. App. 1992)
(“Arguments unsupported by references to legal authority will not be
considered.”).

¶132Finally, the LVM bondholders and Eaton Vance contend that the
commissioner discriminated against long-term policyholders by refusing to
establish a cash reserve account to ensure there are sufficient funds for the
payment of the initial cash percentage to long-term policyholders.

¶133Eaton Vance takes the position that the commissioner was required
to set aside funds for the payment of long-term policyholders based on federal
bankruptcy case law holding that a plan of reorganization must include a
reservation of sufficient funds to pay future claimants.Although we may look to federal bankruptcy
law for guidance on this issue, Eaton Vance does not cite to any federal case
law that persuades us that the commissioner was required to set up a cash
reserve account.

¶134In a separate argument, the LVM bondholders contend that the
commissioner should have created a reserve account because none of the
witnesses who testified in support of the rehabilitation plan asserted that a
reserve account “was impracticable.”

¶135The circuit court agreed with the commissioner that a cash reserve
account was unnecessary based on the following finding:

The cash-note split percentage
was kept low at the outset to protect against the possibility of Ambac in the
future finding itself unable to pay the cash portion…. The split percentage
incorporates a conservative approach to Ambac’s claims-paying resources and
creates a cushion against worse-than-expected financial outcomes.For that reason, establishing reserves for
long-term policies … would have been duplicative of OCI’s already-conservative
approach to claims-paying resources…. Even under the worst of the four
scenarios presented by OCI, Ambac would still have a sufficient cushion above
the 25 percent cash payments with which to pay at least some of the Surplus Note
obligations.

Based on the above finding, we
conclude that it was reasonable for the court to deny the requests for the
establishment of a cash reserve account.We will not second guess the commissioner’s determination that a cash
reserve account was unnecessary because the commissioner carefully considered
the advice of various experts on that issue, and it was in the best position to
make that determination.

C.Setoffs

¶136U.S. Bank National Association (U.S. Bank), acting in its capacity
as trustee for certain residential mortgage-backed securities and other
securities and obligations, argues in its individual brief that the trust
policies are governed by New York law, “which grants policyholders both a
statutory and common-law right of set-off.”According to U.S. Bank, this right of setoff “permits their premium and
other payment obligations to be reduced by the amount of payments owed by”
Ambac.For this reason, U.S. Bank
contends that any premiums that the trusts have not paid should be reduced by
the amount that Ambac owes to the trusts.

¶137The commissioner responds that U.S. Bank has no right of setoff
under Wisconsin law.According to the
commissioner, Wis. Stat. § 645.56(2)(d)
expressly denies the right of setoff when the obligation is to pay premiums to
the insurer, such as the case here.We
agree.

¶138Wisconsin Stat. § 645.56
governs setoffs “in connection with any action or proceeding” brought under ch.
645.Under § 645.56(1), setoffs are
generally allowed, except as provided in subsection (2).Subsection (2)(d) provides that setoffs may
not be allowed in favor of any person where “[t]he obligation of the person is
to pay premiums, whether earned or unearned, to the insurer.”§ 645.56(2)(d).Although U.S. Bank’s contract with Ambac is
purportedly governed by New York law, the Wisconsin statute governing setoffs
“controls the allowance of setoffs in ch. 645 proceedings.” McNamee v. APS Ins. Agency, Inc.,
112 Wis. 2d 329, 335-36, 332 N.W.2d 828 (Ct. App. 1983).Because § 645.56 prohibits the right of
setoff when the obligation is to pay premiums, we conclude that U.S. Bank is
not entitled to a setoff of the unpaid policy premiums that U.S. Bank owes to
Ambac.[18]

D.Control Rights

¶139The Bank of America, N.A., Wilmington Trust Company and Wilmington
Trust FSB (BOA), in their capacity as trustees for certain securitization
trusts, Wells Fargo Bank, N.A., in its capacity as trustee for certain RMBS
Trusts (Wells Fargo), and U.S. Bank argue in their individual briefs that the
circuit court erred by entering an injunction enjoining them from exercising
their control rights.[19]We refer to these interested parties
collectively as the “trustee banks.” The trustee banks argue that they should
not be enjoined from exercising control rights because, according to the
governing documents setting forth Ambac’s rights and responsibilities, Ambac
agreed to transfer its control rights to them in the event that Ambac defaulted
on its contractual obligations, as it did here.[20]We understand the trustee banks to be arguing
that the circuit court erroneously exercised its discretion in granting an
injunction that prevents them from exercising their control rights granted to
them in the governing documents.[21]See Sunnyside Feed Co. v. City of Portage,
222 Wis. 2d 461, 468, 588 N.W.2d 278 (Ct. App. 1998) (grant of injunction
reviewed for erroneous exercise of discretion).We are not persuaded.

¶140As we have indicated, in March 2010, the circuit court granted the
commissioner’s request for injunctive relief, which, as we have explained,
enjoined the trustee banks from exercising their control rights.The trustee banks filed motions challenging
the temporary injunction, which the circuit court denied on the ground that the
court had broad discretion under Wis.
Stat. § 645.05(1)(k) to enter an injunction to prevent any action
that may waste or lessen Ambac’s assets or prejudice the policyholders or the
administration of the proceedings.The
court stated that the commissioner’s “ability to carry out [its] statutory
duties” and to “protect the insured’s interests as well as the interests of the
creditors and the public with minimum interference with the normal prerogatives
of proprietors” would be significantly harmed if the commissioner were not able
to exercise control rights.As we indicated earlier in this opinion, the
temporary injunction will continue to remain effect throughout the
administration of the plan by operation of Section 10.02 of the plan.

¶141The
trustee banks argue that Ambac should not have the power to direct or control
them because Ambac has stopped fulfilling its duties as the insurer.We disagree.The trustee banks do not take into account that it is the commissioner
who has control rights, not Ambac.As we
have indicated, the commissioner has “full power to direct and manage” and “to
deal with the property and business of the insurer.”Wis.
Stat. § 645.33(2).

¶142Wells
Fargo and BOA argue that allowing them to exercise control rights would not
necessarily have “any impact on the financial condition of Ambac or the
Segregated Account.”They observe that
“[a]ny exercise of direction or control rights by [the trustee banks] would
still be subject to the other restraints imposed by the [p]lan,” including
provisions that prevent the trustee banks from suing Ambac for failing to pay
amounts due under the governing documents and from ceasing to make premium
payments.However, the trustee banks
fail to explain why the “other restraints imposed by the plan” would be
sufficient to prevent the trustees from taking action that potentially could
lessen the value of Ambac’s assets and interfere with the administration of
this rehabilitation proceeding.

¶143Moreover,
as the commissioner asserts in its response brief, “removing Ambac’s control
rights would harm the interests of” policyholders and the public “with no
countervailing benefit.”In support, the
commissioner cites to Peterson’s fourth affidavit, which the circuit court
relied on in denying the challenges to the injunction.Peterson states in his affidavit that it is
essential that the trustee banks are enjoined from exercising control rights in
order “to adequately protect claims-paying resources from unnecessary
losses—such as those that might accompany an untimely termination and
liquidation of collateral, or an underperforming servicer.”Enjoining the trustee banks from exercising
control rights is also essential, according to Peterson, so that the commissioner
may “engage in remediation efforts to recover losses caused by third parties’
misrepresentations, breaches of warranty, or other acts or omissions.”Although the trustee banks argue that their
exercise of control rights might not
have a financial impact on Ambac, they provide no evidence to counter the
circuit court’s findings based on Peterson’s affidavit that allowing the
trustee banks to exercise control rights would likely be damaging to the
policyholders and the public in general.

¶144Peterson
further states in his affidavit that preventing the commissioner from
exercising control rights “would not result in a corresponding gain for holders
of the insured obligations.”Peterson
explains that once the commissioner loses the right to exercise the insurer’s
control rights “some of those rights are lost entirely; the holders do not
acquire the right to exercise them.”He
further explains that “[t]hose rights that are transferred to the holders may
be difficult to exercise effectively” because the holders may be required to
reach a consensus in order to exercise those rights.Finally, Peterson explains that “if holders
were able to exercise such rights, they would be under no duty to exercise them
in a way that promotes (or at least does not hinder) the remedial goals of this
rehabilitation.”The trustee banks do
not explain why they should be able to exercise control rights in light of the
above.

¶145Because
the circuit court has broad powers to enter an injunction to prevent the waste
of Ambac’s claims-paying resources, and the trustee banks have not shown that
the court erroneously exercised its discretion in granting the injunction
enjoining the trustee banks from exercising their control rights, we reject the
trustee banks’ arguments.

E.Administrative Burdens

¶146Deutsche Bank National Trust Company and Deutsche Bank Trust
Company Americas, each acting solely in its capacity for certain residential
mortgage-backed securities and other securities and obligations (“Deutsche
Bank”), BOA, and Wells Fargo for the RMBS Trustholders, in their individual
briefs, argue that the rehabilitation plan unreasonably imposes unfair
administrative burdens and exposes them to potential liability.We address each bank’s arguments
separately.

¶147Deutsche Bank contends that the rehabilitation plan “attempts to
shift additional costs and obligations onto the Trusts and Trustees without
providing sufficient compensation or protection.”Specifically, Deutsche Bank contends that the
plan imposes substantial burdens on it because, in contrast to the governing
documents which require Ambac to pay claims within two to three business days
after receiving a notice of claim, the rehabilitation plan allows Ambac an
indefinite period of time to evaluate segregated account claims, which “could
delay claims payments.”We do not
respond to this argument because Deutsche Bank merely speculates that the plan
will impose additional burdens on it and does not cite to any portion of the
record in support of that claim.See Pettit,
171 Wis. 2d at 646 (we may decline to address arguments supported only by
general statements).

¶148Wells Fargo and BOA each contend that the rehabilitation plan will
prejudice them by requiring the trustee banks to undertake new administrative
burdens and incur additional uncompensated expenses to deliver the surplus
notes.Specifically, they complain that
implementing the plan will cause them to incur substantial additional costs
because they are currently equipped to distribute only cash and will need to
build new operational processes to deliver the surplus notes to
policyholders.They also state that they
anticipate incurring out-of-pocket expenses for professional services rendered
by attorneys, accountants, and consults.Wells Fargo and BOA assert that the rehabilitation plan violates the
terms of the governing documents by allegedly imposing these additional
administrative burdens and expenses.[22]We are not persuaded.

¶149Wells Fargo and BOA ignore the circuit court’s finding that the
burdens imposed by the plan were reasonable in “context of the Plan and in
light of the scope and magnitude of the amounts at issue in this
rehabilitation,” particularly given that the commissioner has agreed to “work
with trustees to avoid imposing unreasonable burdens upon them.”The record bears this out.

¶150The record shows that the commissioner has worked closely with the
trustee banks to identify the burdens imposed on them and to assist in making
the transition as efficient as possible.However, as the commissioner observes, the trustee banks have not
identified specific issues that need to be addressed and have failed to
quantify “the purported financial burdens,” or offer suggestions as to how to
lessen those burdens.It appears, then,
that the commissioner agrees with Wells Fargo and BOA in principle that the
plan does impose additional administrative burdens and costs, but explains that
the trustee banks have not provided any specific information that could be
helpful in assisting the commissioner in ameliorating those burdens.Consequently, the trustee banks cannot now
complain about the additional burdens and costs the plan imposes on them to
carry out their responsibilities under the plan.Moreover, if the trustee banks intend to
argue that the commissioner acted arbitrarily and abused its discretion by
including provisions in the plan that impose additional administrative and
financial burdens on them, we observe that the trustee banks have not shown
that any of these administrative and financial burdens are avoidable in the
context of any rehabilitation plan.

¶151Wells Fargo and BOA next argue that the circuit court approved the
rehabilitation plan without “meaningfully analyz[ing] the additional duties,
burdens and expenses that the Plan will impose” on them.The problem with this argument is that the
trustee banks do not explain what more the court should have done to conduct a
meaningful analysis of the “additional duties, burdens and expenses” the plan
imposes.The trustee banks also fail to
come forward with anything in the record that supports their view that the
court did not meaningfully analyze the “additional duties, burdens and
expenses.”

¶152We are satisfied that the circuit court’s finding that the
administrative burdens imposed are reasonable is supported by the record and
the trustee banks have not shown that they are prejudiced by the burden of
having to deliver the surplus notes to their insured certificate holders.

V.Earlier Appeals

¶153In this part of our decision, we address arguments raised by the
RMBS policyholders and the LVM bondholders (collectively referred to as “the
Funds”) in an appeal of an order by the circuit court denying motions
challenging a settlement between Ambac and certain financial institutions, as
well as an order by the court denying requests by the Funds to intervene and
conduct discovery regarding the settlement and challenging the allocation of
their respective policies to the segregated account.

¶154We are presented with three arguments in this prior appeal.First, the Funds argue that the circuit court
erred in denying their motions to intervene.Second, the RMBS policyholders argue that the formation of the
segregated account and the transfer of the RMBS policies to the account were
unlawful.Third, the Funds argue the
court erred in failing to review a settlement agreement between Ambac, the
commissioner, and financial institutions that held certain credit default swap
contracts (the “Bank Group”).We refer
to the settlement as the “CDS settlement.”For reasons that have already been addressed in this opinion, and for
the other reasons that follow, we reject all three arguments.

A. Background

¶155The RMBS policyholders own, or are managers of entities that own,
insurance policies insuring the performance of certain securities, primarily
residential mortgage-backed securities, that were allocated to the segregated
account.The LVM bondholders are owners
or managers of funds that own a majority of the outstanding first tier bonds issued
by the State of Nevada to fund the construction of a four-mile monorail system
in Las Vegas.

¶156As we know, the commissioner petitioned the circuit court to enter
an order of rehabilitation for the policies assigned to the segregated account
and the court entered the order.As we
also know, the court entered a temporary injunction.The court invited interested parties to file
any objections to the temporary injunction order, which the RMBS policyholders
and LVM bondholders did.

¶157During this same time period, Ambac entered into a settlement
agreement with the Bank Group.The CDS
settlement commutes most of the credit default swaps entered into by an Ambac
subsidiary.In exchange, Ambac paid the
Bank Group $4.6 billion, consisting of $2.6 billion in cash and $2 billion in
surplus notes.The funds for the
settlement agreement came from the general account.

¶158Soon after the Funds learned of the allocation of their policies
to the segregated account and of the CDS settlement agreement, they filed
emergency motions.The RMBS
policyholders moved to modify the injunction “to preserve the status quo
regarding the General Account.”The LVM
bondholders moved the court to review the settlement agreement.The Funds also sought to intervene in the
proceedings and to conduct expedited discovery.

¶159In May 2010, the circuit court orally denied the emergency
motions.The court ruled that the
commissioner had the authority to negotiate a settlement with the Bank Group
and that the circuit court did not have authority to review the regulatory activities
of the commissioner.The court further
stated that it would issue an order containing its findings of facts and
conclusions of law.

¶160The court subsequently issued its written order.Although the court indicated in its oral
ruling that it had no authority to review the CDS settlement agreement, the
court made written findings that the settlement “is a fair and reasonable
compromise that will benefit policyholders of both the General and Segregated
Accounts,” in effect approving the settlement agreement.The court further concluded that the
segregated account was formed in compliance with Wisconsin law and that the
Funds were not entitled to intervene or to conduct discovery in rehabilitation
proceedings.The CDS settlement closed
in June 2010.

B. Motion to
Intervene

¶161The Funds argue that they met the statutory requirements for
intervention as of right under Wis. Stat.
§ 803.09(1).[23]Accordingly, the Funds contend that the
circuit court erred by denying the policyholders’ motion to intervene.We disagree.

¶162The Funds’ argument rests on the incorrect premise that the
Wisconsin rules of civil procedure apply in rehabilitation proceedings.As we have concluded, the rules of civil
procedure do not apply to rehabilitation proceedings and therefore the
intervention statute, which is contained in the rules of civil procedure, does
not apply here.

¶163The Funds also assert that Wis.
Stat. ch. 645 has no statute governing intervention.We disagree.Wis. Stat. § 645.33(5)
provides in broad and liberal terms that after a rehabilitation plan is filed
with the circuit court for approval, the court may approve or disapprove the
proposed plan, or modify it and approve it as modified after providing “notice
and hearing as the court prescribes.”We
have explained that this language permits the circuit court to establish
procedures that are tailored to the procedural necessities presented by the
circumstances of each rehabilitation proceeding.That means that the rehabilitation court has
the discretion to grant or deny a motion to intervene, and the Funds provide no
other reason why the rehabilitation court erred in denying the motions to
intervene.[24]

C. Segregated
Account

¶164The RMBS policyholders challenge the formation of the segregated
account on several grounds.We address
here arguments raised by the policyholders in their briefs that were not
addressed by arguments in the consolidated brief.

¶165The RMBS policyholders contend that the allocation of their
policies to the segregated account prior to the circuit court’s order granting
the commissioner’s petition for rehabilitation was ineffective because it
failed to meet the common law requirements for a novation: notice, mutual
consent, and consideration.See Siva
Truck Leasing, Inc. v. Kurman Distribs., 166 Wis. 2d 58, 67, 479
N.W.2d 542 (Ct. App. 1991).In response,
the commissioner argues that the establishment of the segregation account was
not a novation under the common law.We
agree with the commissioner.

¶166Novation is a common law doctrine of contracts and is defined as a
“mutual agreement among all parties concerned for the discharge of a valid
existing obligation by the substitution of a new valid obligation on the part
of the debtor or another, or a like agreement for the discharge of a debtor to
his creditor by the substitution of a new creditor.”Navine v. Peltier, 48 Wis. 2d
588, 593, 180 N.W.2d 613 (1970) (quoting another source).To be effective, a novation must be supported
by consideration and the express or implied consent of the affected
parties.Id. at 593-94; Restatement (Second) of Contracts
§ 280 (1981).

¶167The RMBS policyholders assert that a novation has occurred here by
the creation of the segregated account and the allocation of their policies to
that account, but that the novation was ineffective.According to the RMBS policyholders, a
novation occurred when the commissioner replaced Ambac’s “obligation to the
RMBS policyholders with an obligation to the Segregated Account” and altered
that obligation “so that claims will be paid only partly in cash and the rest
in notes.”However, according to the RMBS
policyholders, the novation was ineffective because Ambac cannot show mutual
consent to the novation and that sufficient consideration was provided to
support the new obligation.This
analysis is flawed for several reasons.

¶168The RMBS policyholders assume, without providing any analysis,
that the common law doctrine of novation applies in the context of a
rehabilitation proceeding.They address
the topic only in their reply brief where they cite to Carpenter, 10
Cal. 2d at 335, in which the California supreme court stated that “[e]very
policyholder who consents to the [rehabilitation] plan clearly enters into a
novation with the new company.”The RMBS
policyholders do not conduct any further analysis of whether the doctrine of novation
applies in a rehabilitation proceeding.In the absence of any argument or authority that establishes the
application of the doctrine in the context of rehabilitation proceedings, and
after our independent research on the topic, we are not persuaded that the
doctrine applies here.

¶169There are sound reasons supporting the commissioner’s position
that the doctrine of novation does not apply to a rehabilitation proceeding in
general, and under Wisconsin’s rehabilitation statutory scheme
specifically.Generally speaking, a
novation under the common law of contracts operates as an “affirmative defense
to a claim for breach of an earlier contract because a novation operates to
discharge the prior agreement.”30 Richard A. Lord, Williston on Contracts § 76:40 (4th ed. 2004) (footnote
omitted).However, the interested
parties have no right to assert affirmative defenses here because, as we have
concluded, the interested parties are not formal “parties” to these proceedings
and these are not legal proceedings.

¶170Moreover, Wis. Stat. § 611.24(2)
provides that a corporation “may establish a segregated account for any part of
its business” and does not impose any obligation on the corporation to obtain
the consent of the policyholders allocated to the segregated account.We agree with Ambac that “such a requirement
should not be read into the statute through application of the common law
doctrine of novation.”

¶171Indeed, the application of the common law doctrine of novation to
rehabilitation proceedings runs contrary to the stated purpose of the
rehabilitation statutory scheme.As we
have explained, rehabilitation proceedings in Wisconsin “should emphasize the
management process, not the legal process.”Comment to Wis. Stat. § 645.01(4),
1967 Wis. Laws, ch. 89, § 17.Applying the common law doctrine of novation to a rehabilitation
proceeding under ch. 645 would be a step toward transforming a management
process into a legal process.

¶172The RMBS policyholders contend that it does not matter whether
novation may be applied in the context of rehabilitation proceedings because
the policies were allocated to the segregated account prior to the commencement
of rehabilitation proceedings.This
contention rests on a technicality that is ultimately irrelevant.This argument fails to take into account that
the commissioner established the segregated account for the sole purpose of
commencing a targeted partial rehabilitation of the segregated account and thus
the creation of the segregated account was in connection with the
rehabilitation proceedings.

¶173Even if we were to assume that the common law doctrine of novation
applies in a rehabilitation proceeding, the RMBS policyholders fail to
establish that the criteria for novation have been met.As we have indicated, “[a] novation
contemplates a substitution of a new contract for a previous one.” Navine,
48 Wis. 2d at 594 (quoting another source).Here, the RMBS policyholders do not point to
any evidence that clearly shows that the transfer of the RMBS policies to the
segregated account resulted in a new obligation being substituted for an old
one.In addition, even though the policies
have been allocated to the segregated account, Ambac continues to be obligated
to the RMBS policyholders by virtue of the fact that all claims filed by
policyholders will be satisfied by funds out of the general account, which is
held by Ambac.

D. Unconstitutional
Taking

¶174The RMBS policyholders contend that the transfer of the RMBS
policies to the segregated account was an unconstitutional taking in violation
of the Wisconsin and United States constitutions.According to the RMBS policyholders, a taking
has occurred because the commissioner approved the creation of a segregated
account without adequately capitalizing it.The RMBS policyholders also assert that a taking has occurred because
the commissioner impaired their contractual rights without providing just
compensation.We disagree.

¶175First, to the extent that the policyholders assert that the
unconstitutional taking occurred because the segregated account was not
adequately capitalized, we have already rejected that argument and do not
address it further here.

¶176Second, to the extent that the policyholders assert that a taking
has occurred because their contractual rights have been impaired, they cite to
no legal authority to support the proposition that the mere approval of the
segregated account and allocation of the RMBS policies to the segregated
account amounts to an impairment of a contractual right.And even if it did, it is well established
that policyholders do not have “the inviolate rights that characterize private
contracts.The contract of the
policyholder is subject to the reasonable exercise of the state’s police
power.”Carpenter, 10
Cal. 2d at 329.The commissioner
reasonably exercised its discretion in establishing a segregated account for
part of Ambac’s business, as the commissioner is permitted to do under Wis. Stat. § 611.24(2).

¶177Furthermore, we reject the argument that an unconstitutional
taking has occurred because the RMBS policyholders do not take into account
several important facts that we have already set forth earlier in this opinion,
including that the policies allocated to the segregated account have access to
almost all of the assets held in the general account; the policies allocated to
the segregated account are expected to receive at least part of their claims in
cash; and the purpose of creating a segregated account and allocating the
riskiest policies to that account was to prevent the entire corporation from
collapsing, which would not have been in the interests of any of the
policyholders, including the RMBS policyholders.

E. Due
Process

¶178The RMBS policyholders contend that the circuit court violated
their due process rights by failing to provide them with notice and the
opportunity to be heard prior to the commissioner’s approval of the segregated
account.They argue that, under general
due process principles, they have a constitutional right to receive notice and
an opportunity to be heard before they are deprived of their property rights
and that no such rights were afforded them prior to the commissioner’s approval
of the segregated account.

¶179In response, the commissioner takes the position that the due
process clause of the United States Constitution does not entitle the RMBS
policyholders to any process prior to the formation of the segregated account
or prior to the commissioner filing a petition for rehabilitation of the
segregated account because the policyholders possessed no discernible,
recognized property interest in the contractual rights the policyholders are
asserting.The commissioner further
argues that the due process clause does not apply because the commissioner’s
approval of the segregated account itself did not deprive the RMBS
policyholders of life, liberty, or property.See U.S. Const. Amend. XIV.[25]We agree.

¶180The RMBS policyholders have not shown that due process required
that they receive notice and the opportunity to be heard before the
commissioner approved the establishment of the segregation account and before
the commissioner filed a petition with the circuit court for an order of
rehabilitation.As the commissioner
points out, the policyholders have not shown that the commissioner deprived the
policyholders of property by the mere approval of the segregated account and
the placement of the RMBS policies into that account.

¶181We also are satisfied that providing notice and the right to be
heard prior to the formation of the segregated account would impose an
unreasonable administrative burden on the commissioner and an unreasonable risk
to Ambac’s business.The commissioner argues
that providing notice and the right to be heard would have enhanced the risk
that entities would have “attempted to exercise the various ipso facto and insolvency triggers in
their contracts.”The commissioner
maintains that if those triggers had been “pulled, it would have had a
disastrous effect on [the commissioner’s] effort to rehabilitate Ambac and
protect policyholders.”

¶182The circuit court entered a finding to this effect.In its findings of fact regarding the
emergency motions filed by the RMBS policyholders and the LVM bondholders, the
court found that engaging in settlement negotiations with all of Ambac’s
policyholders and beneficiaries would be impractical because of the large
volume of policies held by Ambac—almost 15,000 policies across approximately
twenty distinct exposure categories—and the difficulty of identifying the
policyholders of certain types of policies, including those held by
intermediate trustees.The court also
found that “any non-confidential discussions with policyholders would have
greatly enhanced the risk that parties would have exercised certain triggers in
their contracts with Ambac, which would have had a disastrous effect on Ambac’s
financial condition.”The RMBS
policyholders do not allege that this factual finding was clearly erroneous and
we see no reason to upset this finding.

¶183Finally, there is no reason to believe that the RMBS policyholders
have been prejudiced by the alleged failure to receive notice prior to the
formation of the segregated account and the allocation of the RMBS policies to
that account because they had a meaningful opportunity to participate at the
hearing on the approval of the rehabilitation plan.At the hearing, they were permitted to raise
their objections to the creation of the segregated account and their allocation
to that account, and the court considered those objections before approving the
plan. Thus, to the extent that the RMBS policyholders had a right to be
meaningfully heard, they were ultimately provided with greater due process
protections than required under the rehabilitation statutory scheme.

F. CDS
Settlement

¶184The Funds contend that the circuit court erred in determining that
it lacked authority to review the CDS settlement.[26]According to the RMBS policyholders, judicial
review of the settlement was required for two reasons: first, because under the
terms of the cooperation agreement between the segregated account and Ambac,
the segregated account must consent before Ambac transacts any business that
involves proceeds in excess of $5 million, and the segregated account did not
consent to the CDS settlement; and second, because the general account “is
inextricably intertwined with” the rehabilitation of the segregated account and
depletion of the assets held in the general account will diminish the assets
available to the segregated account.

¶185We assume without deciding that the court was obligated to review
the CDS settlement.However, we conclude
that the court properly reviewed and approved the settlement as demonstrated by
the court’s findings of fact and conclusions of law regarding the settlement,
which were made after extensive briefing and argument on the matter.[27]

¶186The LVM bondholders contend that the court failed to conduct a
meaningful review of the settlement and instead “uncritically adopted” the
commissioner’s reasoning.In support,
the LVM bondholders cite to Trieschmann and to federal
bankruptcy cases, which, according to the LVM bondholders, demonstrate that a
court commits reversible error when it fails to state its reasoning for a
decision on the record.

¶187The LVM bondholders cite to no case that suggests that a court
must specifically state its reasoning in a context such as the one here.As we have already concluded, Trieschmann
does not apply outside the context of family law matters and there is
no requirement that a court provide findings of fact and conclusions of law in
the context of rehabilitation proceedings.See In re Callahan, 102 Wis. at 561. Moreover, we are not bound by
the decisions of federal bankruptcy courts, which are governed by their own
statutory rules and procedures and not by the flexible and informal procedures
that apply in the rehabilitation context.

¶188Regardless, the circuit court provided a general explanation as to
why it was denying the motions of the LVM bondholders and RMBS policyholders.It is true that the court indicated its
belief that it lacked authority to review the settlement.However, after hearing extensive arguments on
the issue, and reviewing the briefs presented, the court also expressed that it
was to give “due deference” to the expertise of the commissioner and that it
was not its role to substitute its reasoning for the commissioner’s
reasoning.Thus, the court at least
implicitly indicated that there was no basis to challenge the commissioner’s
decision to enter into the settlement.

¶189Moreover, the LVM bondholders and RMBS policyholders do not
challenge any of the court’s specific findings of fact or conclusions of law
regarding the settlement.The court
stated in its findings that “[a] compromise between Ambac and the Bank Group
was and remains important to the financial condition of Ambac and the interests
of policyholders.”The court also noted
that Ambac and the Bank Group selected an independent appraiser to value the
Bank Group’s claims and that the commissioner performed its own analysis of the
appraisals and determined that they are “fair and reasonable estimates,” of the
massive losses to be expected absent a settlement agreement.The court further stated:

The proposed Bank Group Settlement
benefits all policyholders of Ambac’s General Account and the Segregated
Account.Settling the growing, volatile
[credit default swap] exposures at a major discount inures to the benefit of
all other policyholders by capping those exposures, eliminating the possibility
of costly, slow-moving mark-to-market litigation that would reduce recoveries
to policyholders in the Segregated Account, impair Ambac’s ability to provide
continuing coverage to policyholders in the General Account, and delay the ultimate
resolution of Ambac’s financial situation.

¶190The LVM bondholders and RMBS Policyholders do not provide any
basis to conclude that the commissioner abused its discretion in entering into
a settlement that the court found protects the interests of policyholders,
creditors, and the public by avoiding the massive losses that would have
resulted had the commissioner not agreed to a settlement.

¶191The LVM bondholders and RMBS policyholders next contend that the
court erroneously exercised its discretion in denying their requests to conduct
discovery to determine whether “the settlement was in the interests of the
Segregated Account.”However, they do
not explain why they were entitled to conduct discovery regarding the
settlement and, as we have also already concluded, there is no right to conduct
discovery in connection with rehabilitation proceedings.

¶192The LVM bondholders also argue that the court failed to “apprise
itself of key facts bearing on the settlement’s fairness.”The LVM bondholders contend that the court
failed to consider, for example, whether the settlement would give priority to
certain creditors over policyholders in violation of the priority scheme set
forth in Wis. Stat. § 645.68.However, as we have already concluded, the
priority scheme does not apply to rehabilitation proceedings.Consequently, even assuming that the court
should have given more careful consideration to the “key facts bearing on the
settlement’s fairness,” the court’s error was harmless.Based on the above, we conclude that the
circuit court conducted a sufficient review of the settlement and properly
denied the motions challenging the settlement.

CONCLUSION

¶193After giving full consideration to the objections, contentions,
and arguments and after a careful examination of the record before us and of
the circuit court’s findings and conclusions of law, we conclude that the
circuit court properly exercised its discretion in confirming the
rehabilitation plan at issue in this case.We further conclude that the interested parties have not met their
burden to prove that any of the actions taken by the commissioner and
subsequently approved by the court were arbitrary or an abuse of the
commissioner’s discretion.Accordingly,
we affirm.

By the Court.—Orders affirmed.

[1] Judge
William D. Johnston of LaFayette County sat by special assignment.

[2] The
above appeals are consolidated for the purpose of disposition.

[3] We
refer to the objectors to the rehabilitation plan collectively as the
“interested parties,” and not as the appellants.As we stated in our May 5, 2011 order, we do
so because rehabilitation proceedings generally have a petitioner and a subject.

[4] All
references to the Wisconsin Statutes are to the 2011-12 version unless
otherwise noted.

[5] The
following interested parties have joined in the consolidated brief: the Federal
Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage
Association (Fannie Mae).Wells Fargo
Bank, N.A., as trustee for the LVM bondholders, has joined in the consolidated
brief, with the exception of the second, third, and fourth arguments
presented.Access to Loans for Learning
Student Loan Corporation (ALL), Lloyds TSB Bank plc (Lloyds), and Depfa Bank
plc (Depfa) initially joined in the consolidated brief but have since been
dismissed from these appeals.We
therefore do not address the arguments made in separate briefs filed by the
dismissed interested parties.

[6] Many
of the arguments raised in the individual briefs are merely a repeat of the
arguments raised in the consolidated brief, and, in our May 5, 2011 scheduling
order, we instructed the interested parties not to repeat arguments in their individual
briefs. Therefore, to the extent that the interested parties have filed
individual briefs raising arguments that are the same or substantially similar
to those presented in the consolidated brief, we will not address those
arguments. In addressing the new
arguments raised in the individual briefs, we identify which interested parties
have raised those arguments and refer to them by name, unless otherwise
indicated.

[7] We
observe that Article 2 of the rehabilitation plan, concerning the treatment of
claims generally, organizes claims into three categories and prioritizes them
as follows: (1) administrative claims; (2) policy claims; and
(3) general claims.Our conclusion
that Wis. Stat. § 645.68
applies only to liquidation proceedings does not negate the priority scheme set
forth under the plan.Although, as we
conclude, the commissioner was not required to follow the priority structure
set forth in § 645.68, nothing prevents the commissioner from creating a
plan that includes a priority scheme, as the commissioner did here.

[8] The
Customer Asset Protection Company (CAPCO) argues in its individual brief that
the language of Wis. Stat. § 645.68
requires that a reinsurance contract be treated as a loss claim under
§ 645.68(3) and not as a residual claim under § 645.68(5).Because
we conclude that § 645.68 does not apply to rehabilitation proceedings, we
do not reach that argument.

[9] Because
we reject the interested parties’ argument that they are entitled to the liquidated
value of their claims or the right to opt out of the plan and receive the
liquidated value of their claims, we need not address whether the liquidation
analysis establishes that policyholders will receive the liquidated value of
their claims under the plan.

[10] We
note that similar challenges are raised in several of the individual briefs to
Section 4.04(g) of the plan, which provides in relevant part that Ambac “shall
be entitled to recover the full amount of all recoveries, reimbursements and
other payments and to receive any assets it is owed in its capacity as insurer
….”Because the challenges raised in the
individual briefs to Section 4.04(g) of the plan substantially overlap with the
challenges raised in the consolidated brief to Section 4.04(h) of the plan, and
we conclude that there is no merit to the challenges presented in the
consolidated brief, we do not separately address the challenges raised in the
individual briefs.

[11] Section
3.06 of the plan, titled “Alternative Resolutions of Claims,” states in
relevant part:

Nothing in this
Plan shall limit the ability of the Rehabilitator to resolve any Claim through
the arrangement, negotiation, effectuation and execution of an amendment,
restructuring, refinancing, purchase, repurchase, termination, settlement … or
any similar transaction that results in the extinguishment or reduction of the
Segregated Account’s liability ….

Other than as
expressly provided for in this Plan, all Holders of Claims are precluded from
asserting against the Segregated Account, the General Account or AAC, or their
respective successors or property or any of their respective current or former
members, … any Claims, obligations, rights, causes of action or liabilities,
based upon any act, omission, transaction, or other activity of any kind or
nature, made in connection with, or arising out of, the Segregated Account, AAC
or the General Account with respect to the Segregated Account, the Proceeding,
this Plan (and the Confirmation Order related thereto), the consummation of
this Plan, or the administration of this Plan or the property to be distributed
under this Plan, other than claims of intentional fraud or willful misconduct.

Section 9.01 lists the beneficiaries of the immunity and indemnification
protections.It states in relevant part:

The following
Persons are entitled to protection under this part of this Plan: OCI, the
Rehabilitator, the Special Deputy Commissioner, the Segregated Account, AAC and
the General Account, and the Management Services Provider, and each of their
respective current and former members, shareholders, affiliates, officers,
directors, employees and agents (including any attorneys, financial advisors,
investment bankers, consultants and … any other advisors or experts with whom
OCI, the Rehabilitator or the Special Deputy Commissioner consults, as
contemplated by Wis. Stat. § 645.33(3)).

Section 9.02 sets forth the scope of the immunity and
indemnification protections.It provides
in relevant part:

All Persons identified
in Section 9.01 shall have official immunity and shall be immune from suit and
liability, both personally and in their official capacities, for any act or
omission made in connection with, or arising out of, the Segregated Account,
AAC or the General Account with respect to the Segregated Account, the
Proceeding, this Plan … or the administration of this Plan … with the sole
exception of acts or omissions resulting from intentional fraud or willful
misconduct as determined by a Final Order …. If any legal action is commenced against any
Person identified in Section 9.01 … caused by or resulting from any act or
omission made in connection with, or arising out of, the Segregated Account,
AAC or the General Account with respect to the Segregated Account, the
Proceeding, this Plan … or the administration of this Plan or the property to
be distributed under this Plan, that Person shall be indemnified by the
Segregated Account for all expenses, … unless it is determined by a Final Order
that the alleged act or omission was caused by intentional fraud or willful
misconduct.

On request of the
rehabilitator, any court in this state before which any action or proceeding by
or against an insurer is pending when a rehabilitation order against the
insurer is entered shall stay the action or proceeding for such time as is
necessary for the rehabilitator to obtain proper representation and prepare for
further proceedings…. The rehabilitator shall immediately consider all
litigation pending outside this state and shall petition the courts having
jurisdiction over that litigation for stays whenever necessary to protect the
estate of the insurer.

[14] The
RMBS policyholders argue in their individual brief that Section 8.02 of the
plan, which protects the trustees of securitization trusts from civil liability
for actions taken in carrying out the plan, violates Wis. Stat. § 645.08(2) because the trustees are not
granted protections from civil liability under the statute.We reject that argument because, as we have
concluded, § 645.08(2) does not prevent a rehabilitation plan from
providing protections to individuals and entities not listed in the statute.

To the extent that
the RMBS policyholders are also arguing that Section 8.02 of the rehabilitation
plan is overbroad because it could be construed to unlawfully extinguish the
claims they have against the trustees without their consent, we reject that
argument.They cite to no legal
authority standing for the proposition that a rehabilitation plan cannot
provide protections to trustees without the policyholders’ consent and, in any
event, they concede that Section 8.02 provides protections only for acts taken
in carrying out the plan.

[15]Wisconsin Stat. § 804.01(2)(a)
states in pertinent part: “Parties may obtain discovery regarding any matter,
not privileged, which is relevant to the subject matter involved in the pending
action ….”

[16] We
note that the LVM bondholders argued in an earlier appeal that the allocation
of the LVM bonds to the segregated account was discriminatory and in violation
of the equal protection clauses of the United States and Wisconsin
constitutions.In support, they cited to
Carpenter
v. Pacific Mutual Life Ins. Co., 10 Cal. 2d 307, 335-37, 74 P.2d 761
(1937).The California supreme court
determined that the rehabilitation plan at issue in that case was not
unlawfully discriminatory because the difference in treatment between holders
of non-cancelable accident and health policies and the holders of life
insurance policies was justified.Carpenter,
10 Cal. 2dat 336. The court explained that holders of non-cancelable
accident and health policies were treated differently because they paid
insufficient premiums, which caused the company’s financial troubles, and the
only way to preserve the company’s business was to treat those policyholders
differently from holders of life insurance policies.Id. at 336-37.Here, similar to Carpenter, allocating the LVM bonds
to the segregated account maximizes the assets available to both the LVM
bondholders and the holders of bonds held in the general account.It also represents the best opportunity to
save Ambac from financial disaster.We
find no equal protection violation in the allocation of the LVM bonds to the
segregated account.

[17] We
do not address a related argument made by the LVM bondholders that the
commissioner erred in failing to disclose the financial data underlying its
determination to set the initial cash percentage at 25% because we have already
concluded that the interested parties were not entitled to discovery and, in
any event, they do not direct us to any legal authority in support of their
argument.

[18] U.S.
Bank argues in a footnote in its individual brief that even if Wisconsin law
applies, “Wisconsin law would, at most, only prohibit set-off of premiums” and not other payment
obligations.However, U.S. Bank does not
take into account that courts may enter injunctions to prevent the waste of the
insurer’s assets, which would occur here if the policyholders were required
only to make premium payments, and not to meet their other payment
obligations.In any event, U.S. Bank does
not develop an argument on the topic and therefore we do not further address
it.See
State v. Pettit, 171 Wis. 2d 627, 646-47, 492 N.W.2d
633 (Ct. App. 1992).

[19] According
to Peterson’s fourth affidavit, control rights are contractual rights that
generally permit an insurer to exercise certain rights, including

the right to
exercise control over the loan services (including the right to receive
information such as loan files, and the right to terminate the servicer for
failure to meet certain criteria), the authority to direct the trustee to
assert rights under the transaction documents, the right to consent to
amendments and waivers under the transaction documents, and the right to
declare events of default, trigger events, and early amortization events.

[20] As
we understand, the governing documents delineate the rights and
responsibilities of Ambac with respect to transactions involving policies for
which certain trustees may be policyholders.These documents may include pooling and servicing agreements and trust
agreements.

[21]U.S. Bank also argues in its individual brief
that the court erred in approving a provision in the injunction that prevents
the trustee banks from prosecuting actions in any state.According to U.S.
Bank, injunctions entered in Wisconsin under Wis.
Stat. § 645.05 may be enforced only in this state, and therefore,
if the commissioner wants the injunction enforced in other states, it must
apply for injunctive relief in those states.We do not address this argument because U.S. Bank does not present a
fully developed argument on the issue.See Pettit,
171 Wis. 2d at 646-47.

[22] Wells
Fargo and BOA also argue in conclusory fashion that the plan imposes unfair
burdens because the trustees will be required to deliver surplus notes under
Section 4.04(d) of the plan even when “another agent has the contractual
responsibility for making distributions.”However, the trustee banks do not explain how the plan should have been
structured to avoid the imposition of this alleged burden.Because this argument is undeveloped, we do
not address it.Pettit, 171 Wis. 2d
at 646.

[23] The
RMBS policyholders argue in the alternative that the circuit court should have
permitted the policyholders to intervene as a matter of the court’s
discretion.See Wis. Stat. § 803.09(2)
(permitting discretionary intervention where certain statutory criteria are
met).The RMBS policyholders do not
support their position with a fully developed argument. Moreover, the
policyholders ignore that the court did in fact exercise its discretion under Wis. Stat. § 645.33(5) in rejecting
their motion to intervene.The RMBS
policyholders offer no reason why the court’s exercise of discretion under
§ 645.33(5) was erroneous.

[24] We
note that Freddie Mac joined in the LVM bondholders’ brief-in-chief and filed a
separate reply brief.Freddie Mac does
not respond to Ambac’s and the commissioner’s intervention arguments in its
reply brief.We take Freddie Mac’s
failure to respond as a concession that the circuit court properly exercised
its discretion in denying the motions to intervene.See Charolais Breeding Ranches, Ltd. v. FPC
Sec. Corp., 90 Wis. 2d 97, 109, 279 N.W.2d 493 (Ct. App. 1979)
(failure to respond to a proposition in a brief may be taken as a concession on
that point).

[25]U.S. Const. amend. XIV, § 1
provides that: “No State shall … deprive any person of life, liberty, or
property, without due process of law ….”

[26] As
a threshold matter, the commissioner and Ambac argue in their response briefs
that the Funds lacked standing to challenge the settlement agreement.We assume for purposes of this opinion that
the Funds had standing to challenge the settlement and proceed directly to the
merits of the arguments raised by the Funds.

[27] We
point out that the commissioner and Ambac argue that, assuming the Funds have
standing to challenge the settlement agreement, the issue is whether the court
erred in denying the Funds’ motions to enjoin the bank settlement based on the
four criteria for granting a temporary injunction.However, we instead frame and analyze the
issue as whether the court conducted a sufficient review of the settlement
because that is how the Funds frame and argue the issue.